- The Canadian Dollar consolidated its previous moves.
- The all-important BOC decision is left, right, and center.
- The technical picture is marginally positive for the pair and the FX Poll of experts shows a slightly bearish bias on the pair in the short term.
This was the week: Treading water on trade
After the comeback in the previous week, the Canadian Dollar found some stability. Oil prices continued advancing but eventually lost some ground as inventory data showed a large build in crude oil inventories.
Canada slapped counter-tariffs on the US over the weekend and did so with "sorrow" as Foreign Minister Chrystia Freeland stated. The Canadian approach is not to escalate nor to stay put but instead respond in kind to every American move. There have been no further repercussions on the North American trade front. Mexico elected Andres Manuel Lopez Obrador as President, as expected. His rhetoric has relatively moderate.
The US went forward with imposing its tariffs on China, and the latter responded with counter-tariffs in what seemed like a reluctant move. Markets had already priced in these tit-for-tat moves ahead of the implementation.
Canada reported a considerable gain in jobs: 31.800 in June. However, wages fell short with 3.5% YoY after 3.9% last time.
America's jobs report disappointed in the same manner: 213,000 positions gained but wage growth stagnated at 2.8% YoY and rose by only 0.2% MoM. The USD/CAD endured choppy trading around the double-feature publications but did not change its positions too much once the dust settled.
Canadian events: BOC stands out
The Bank of Canada is set to raise the interest rates by 0.25% to 1.50%. The previous rate decision laid down thick hawkish hints towards this outcome, and BOC Governor Stephen Poloz reiterated the message. The decision is based on the recent upbeat economic activity and especially the acceleration in wage growth, which is due to manifest itself in inflation as well.
The BOC is aware of the downside risks to the economy posed by deteriorating relations with the US, which imports the vast majority of Canadian exports. Nevertheless, with very few signs of real economic impact at this stage, the BOC is set to march forward. A hike now will also give the BOC more leverage to cut rates if push comes to shove.
Also, Canada releases three housing figures during the week: housing starts and building permits on Tuesday, and the New Housing Price Index on Thursday.
Here is the Canadian calendar for this week.
US events: Inflation and consumer data
The week commences with the Consumer Credit report on Monday, but the first significant event is on Wednesday with the Producer Price Index, one day ahead of the Consumer Price Index on Thursday.
US Core CPI is projected to accelerate once again, supporting further rate hikes by the Fed. If the figure comes in as expected, changes in monthly Core CPI and the headline figures could also make a difference.
Friday features the preliminary version of consumer sentiment which has been stable of late around 98 points. Better consumer sentiment implies elevated consumption.
Here are the critical American events from the forex calendar:
USD/CAD Technical Analysis - Only slightly bullish
A bullish bias has accompanied the pair for quite a while, and it is beginning to wane now. While the USD/CAD is trading above the 50-day and 200-day Simple Moving Averages, the Relative Strength Index is flat around 50 and Momentum is lacking.
1.3125 was the high point in March and remains a meaningful level. Upside resistance awaits at 1.3250 which served as support when the pair traded at higher ground towards the end of June. The 2018 high of 1.3380 is a double top and a robust resistance level. Even higher, the round number of 1.35 is notable.
1.3100 supported the pair in the first week of July. Stronger support awaits at 1.3150 which capped the pair in late May. Below the round number of 1.3000, 1.2950 provided support just before the surge in mid-June.
USD/CAD Sentiment Poll
The FXStreet forex poll of experts shows a small bearish tendency on the pair, in line with the recent trend. Looking more closely, the experts are cautious reflecting high uncertainty around the Canadian dollar, very much in line with the uncertainty Canada has around trade.
Where next for USD/CAD?
The Canadian Dollar enjoyed the market calm, but this may not last for too long. Oil prices may have peaked out and trade concerns, especially North American ones, may return to the limelight. All in all, the C$ has room to the downside and the USD/CAD to the upside.
Related Forecasts
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
USD/JPY crashes nearly 450 pips to 155.50 on likely Japanese intervention
Having briefly recaptured 160.00, USD/JPY came under intense selling to test 155.00 on what seems like a Japanese FX intervention underway. The Yen tumbled in early trades amid news that Japan's PM lost 3 key seats in the by-election. Holiday-thinned trading exaggerates the USD/JPY price action.
AUD/USD rallies toward 0.6600 on risk flows, hawkish RBA expectations
AUD/USD extends gains toward 0.6600 in the Asian session on Monday. The Aussie pair is underpinned by increased bets of an RBA rate hike at its May policy meeting after the previous week's hot Australian CPI data. Risk flows also power the pair's upside.
Gold tests critical daily support line, will it defend?
Gold price is seeing a negative start to a new week on Monday, having booked a weekly loss. Gold price bears the brunt of resurgent US Dollar (USD) demand and a risk-on market mood amid Japanese holiday-thinned market conditions.
Ethereum fees drops to lowest level since October, ETH sustains above $3,200
Ethereum’s high transaction fees has been a sticky issue for the blockchain in the past. This led to Layer 2 chains and scaling solutions developing alternatives for users looking to transact at a lower cost.
Week ahead: Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.