USD/CAD Forecast: CAD comeback as NAFTA negotiations ignite, GDP eyed
|- The Canadian Dollar turned up on advanced trade negotiations.
- Canada's GDP and busy American calendar should keep markets busy.
- A broad downtrend channel is emerging but other indicators are more nuanced. The FX Poll shows a mixed trend on the pair.
This was the week: NAFTA is on the move
The Canadian Dollar made a significant comeback. It began with US President Donald Trump's upbeat comments on Mexico and continued with optimistic words from the top negotiators. Canada's Foreign Minister Chrystia Freeland and US Trade Representative Robert Lighthizer both talked about advanced negotiations.
The change of direction by the Trump Administration was also notable on the European front. The meeting Trump held with the EU's Jean-Claude Juncker resulted in an agreement to open talks to lower tariffs, and not to impose new ones during the talks.
The better market mood and especially NAFTA which is dear to Canada sent the loonie higher.
In the US, Q2 GDP came out at a robust 4.2%, as expected but below the whisper number of 4.8% touted by Fox News. The "sell the fact" reaction exacerbated the falls of the USD/CAD.
Canadian events: GDP in the limelight
Canada publishes its monthly GDP report for May, the second month of the second quarter. The Canadian economy by a meager 0.1% in April after a not-so-great Q1. While expectations for May are modest as well, an uptick in growth is likely in the whole of Q2.
Canada's trade balance release on Friday is also notable. The nation has seen a relatively broad deficit.
As in most weeks in previous months, the main theme for the Canadian Dollar remains trade. Any headline related to the ongoing talks is set to impact the C$. Oil is on the backburner for now.
Here is the Canadian calendar for this week.
US events: Busy week with the Fed and the NFP
The American calendar is packed. The Fed's favorite inflation measure, Core PCE is released on Tuesday. Despite a rise in Core CPI that has already been published, the different methodology used in the PCE calculations indicates a small downgrade to 1.9%, below the 2% target.
The action is significant on Wednesday. The ADP Non-Farm Payrolls and the ISM Manufacturing PMI provide hints for Friday's jobs report and then the focus shifts to the Fed. The FOMC is set to leave rates unchanged at this meeting that does not consist of a press conference. Nevertheless, comments on the robust GDP numbers and on inflation may certainly move markets. Any referral to trade in the statement would be a surprise as it has not happened before and would weigh on the greenback.
Friday sees the Non-Farm Payrolls. A repeat of the 2.7% annual increase in wages is on the cards, but the monthly pace is expected to rise from 0.2% to 0.3%. Earnings have a greater impact than job gains, with the latter set to remain around 200,000.
Here are the critical American events from the forex calendar:
USD/CAD Technical Analysis
The pair is trading in a broad and moderate downtrend channel (black lines on the chart). The USD/CAD has also slipped below the 50-day Simple Moving Average, another bearish sign. On the other hand, it continues trading significantly above the 200-day SMA. The Relative Strength Index is quite balanced and Momentum is lacking.
1.3025 was a low point in late July. Further down, 1.2950 was a stepping stone on the way up back in mid-June. The next line is 1.2860 that was a swing low in early June. Further below, 1.2730 supported the pair in May.
1.3105 was a support line during the month of June. 1.3220 held the pair down in early July and 1.3295 was a stubborn high later in the month. The peak of 1.3380 seen in June is the last notable line.
USD/CAD Sentiment
The accelerated NAFTA negotiations are a game changer for the Canadian Dollar. Assuming things go smoothly during the summer, the C$ could see further gains yet a lot depends on GDP. Things may change later on, but the tendency is bearish on the USD/CAD for now.
The FXStreet forex poll of experts shows that the short-term tendency is bearish, then bullish and then neutral. The average changes are limited. All in all, forecasts have not shifted that much from the previous poll. The uncertainty surrounding trade may cause some caution.
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