USD/CAD: bears carry a Q3 target of 1.28
|- While the dollar gives a little bit of ground back across the board, commodities, in general, have been able to deliver some added support to the Loonie.
- The near-term balance of risk favours CAD strength into the July 11 BoC decision.
USD/CAD has moved lower in a quiet 4th July holiday North American session from 1.3156 down to 1.3127 where demand drove the price back to the 21-hr SMA at 1.3139, attempting to stabilise the 27th June downtrend from 1.3385.
However, the near-term balance of risk favors CAD strength into the July 11 BoC decision, according to analysts at Scotiabank where they explain, market participants have firm expectations for a 25bpt hike: "Yield spreads have narrowed considerably from the extended levels observed in late June and measures of sentiment have recovered, suggesting a clear turn and erosion in the premium for protection against CAD weakness."
While the dollar gives a little bit of ground back across the board, commodities, in general, have been able to deliver some added support to the downside case in the pair whereby the price of Western Canada Select has almost fully retraced its decline from mid-May and the price of WTI has broken above $75/bbl for the first time since late 2014.
"We are bullish CAD with a Q3 USDCAD target of 1.28,"
the analysts at Scotiabank added.
The week ahead:
On Thursday in North America, we have the ADP private employment, initial jobless claims, ISM non-manufacturing index and the FOMC minutes. Trader's attention will then turn to the U.S. nonfarm payrolls data and the Chinese tariff threat that kicks on the same day. Domestically, Canada also comes with its own employment data as well as trade/purchasing/export numbers.
USD/CAD levels
On the daily charts, where the June high comes in at 1.3386, USD/CAD is longer-term still aiming for the 1.3532/97 November and December 2016 ahead of the March 2017 highs. However, on a continuation of the downside, the four-month support line comes in at 1.3011 ahead of the 55-day moving average at 1.2977 and the 1.2950 mid-June low. A break thereof, 1.2815 comes back on the radar.
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