USD/CAD Forecast: The US dollar regains its poise

• Bank of Canada cuts 0.5% in first emergency reduction since 2008
• Canadian dollar rises after BOC action, loses 2.9% on the week
• Crude oil climbs 6% on Friday after reaching a three year low

The Canadian dollar recovered from a four-year low on Friday as the Bank of Canada reduced its base rate for the second time in nine days and the Ottawa government promised to do whatever was necessary to protect the country.

Two rate cuts brought Canada’s benchmark rate to 0.75% its lowest since September 2017 and federal Finance Minister Bill Morneau said he would announce a substantial stimulus package next week.

On the week the loonie lost 2.9% against the US dollar as US Treasury rates rose after Monday’s record 0.498% low, closing at 1.3804 having opened on Monday at 1.3415. At its bottom of 1.3996 on Friday the Canadian dollar was off 4.3% but the BOC action and a 6% jump in crude oil prices aided the return.

Friday’s response to the BOC rate cut, normally a currency weakening event, is indicative of the state of markets and their focus on the negative economic effects of the Coronavirus.

Canadian statistics March 9-13

Monday

Housing starts in February at 201,100 were on par with the 205,000 forecast and the last half year. Building permits in January were stronger than predicted rising 4%. They had been projected to drop 3% after December’s unexpected 9.9% surge.

Canadian statistics March 16-20

Wednesday

Inflation is predicted to be stable in February with the overall rate falling 0.1% on the month to 0.2% and the same annual pace to 2.3%.  Core price changes are expected to be unchanged at 0.1% and to fall to 1.7% from 1.8% on the year.

Thursday

The February employment change from ADP the private payroll company is expected to list 18,100 new jobs in February down from 25,900 in January.

Friday

Retail sales for January are predicted to gain 0.3% after December’s flat total. Sales ex-automobiles are to fall 0.1% following December’s 0.5% increase.

FXStreet

Statistics conclusion

The Canadian economy entered the Coronavirus era with reasonable if waning strength.   March is the first month where analysts can begin to assess the impact of the virus on the Canadian economy and these statistics are not yet available. Until they are markets will continue to be ruled by government, central bank and public health news.

US statistics March 9-13

Economic information that reflects the situation prior to the advent of the virus has ceased to affect markets which remain focused on government and central bank developments.

Tuesday

Inflation was slightly higher than forecast in February at 0.1% on the month and 2.3% annually in the headline and 2.4% on the year in the core and 0.2% for the month.

Thursday

Initial jobless claims in the first week of March at 211,000 and 214,000 in the 4-week moving average show no impact from the partial economic shutdown in China or its supply chain disruptions in the US.  This statistic is one to watch in the next weeks for evidence of layoffs when and if domestic business begins to slow.

Friday

Michigan consumer sentiment for March, the first consumption oriented information was a bit stronger than forecast at 95.9 over 95.0 though down from February’s 101, the second highest reading since the recession.  If this attitude holds up it is good news for the US economy which is 70% consumption based.

FXStreet

US statistics March 16-20

Tuesday

Retail sales for February are forecast to gain 0.2% after January’s 0.3% rise. Sales ex-autos are expected to be unchanged at 0.3% and the control group to rise 0.15 following flat in January.

Wednesday

The Federal Reserve rate decision dominates the agenda. After the emergency cut of 0.5% last week the futures markets expects further action from the central bank. Either a 50 basis point cut, 24.3% or a 75 point one, 75.7%.  The Fed announcement on Friday of additional bond purchases likely increased the rate cut odds.

Thursday

Initial jobless claims for the March 13^th week.  Any hint of layoffs will worry investors.

FXStreet

US statistics conclusion

The relative unimportance of economic data that pre-dates the viral outbreak has another two weeks to run before markets start to see information on March. The Michigan consumer sentiment reading for March at 95.9, which will be revised on the 27^th was encouraging, but insufficient to draw any solid conclusions about consumer spending.  

As such the paucity of pertinent economic data in the week ahead will leave the headlines to governments, politicians, central bankers and the media, all who will have much to say but with little concrete economic information.

The dollar was revived by the reversal in the Treasury market, where the 10-year closed at 0.983%  from 0.498% on Monday.  In the week ahead the US currency will primarily reflect government, market  and central bank actions  in the United States, Europe and the rest of the world

USD/CAD technical outlook

The week's sharp gain in the USD/CAD brought the relative strength index firmly into overbought territory.  Though the rising trend in the pair dates back to the first week in January, the 200-day moving average has yet to execute the same upward turn as the shorter durations. 

As we have observed for the currency markets in general, indicators are of limited use in determining direction in markets almost wholly controlled by news. 

Resistance: 1.3939, 1.4074, 1.4152. All of recent vintage and moderate strength.

Support: 1.3726, 1.3647,1.3513. The first is from May 2017 and weak. The second is January 2019 and the third May of the same year, both moderate to strong. 

USD/CAD sentiment poll

The outlook for the USD/CAD has turned negative across all three timeframes this week in response to the steep ascent of the US dollar. 

The one week bullish view is unusually at 0% from 42%, bearish at 67% from 25% and neutral unchanged at 33%. The forecast of 1.3776 gains three and a half figures from last week.

The one month outlook is 27% bullish from 19%, 70% bearish from 59%% and 3% neutral from 22%. The forecast of 1.3527 is ahead of last week's 1.3290. 

The quarter view is 22% bullish from 25%, unchanged at 69% for bearish and weakly neutral at 9% from 6%. The 1.3539 forecast is little different from the one month and  up from 1.3248 a week ago.

This week's rise in the US dollar is seen as unsustainable by our analysts but the view is dependent on a the unlikely event of a unexcitable news flow.