USD/CAD Forecast: Canadian dollar breaks above 1.33, GDP next

The Canadian dollar has recorded losses in the Friday session. Currently, USD/CAD is trading at 1.3296, up 0.33% on the day. On the release front, Canada releases GDP, a monthly indicator. The markets are predicting a small gain of 0.1% in September, unchanged from the August release. The Raw Materials Price Index is expected to nosedive, with a forecast of -5.2%. In the U.S., Chicago PMI is expected to edge up to 58.6 points. As well, the G-20 begins a 2-day summit in Argentina.

Canadian officials are keeping a nervous eye on the G-20 summit in Argentina. The highlight of the 2-day meeting promises to be the tête-à-tête on Saturday between President Trump and Chinese President Xi Jinping. The full-blown trade war has taken a bite out of both economies and if threatens to dampen global economic growth. Will the sides make some progress, or will Trump make good on his threat to slap China with higher tariffs? Given Trump’s unpredictability, it’s anyone’s guess how the meeting will go, but good or bad, traders can expect the equity and currency markets to respond on Monday.

The Federal Reserve has made a sharp U-turn on monetary policy, catching the markets off guard. Powell was unexpectedly dovish in his remarks at an event in New York, saying that the current benchmark rate of 2-2.5 percent is “just below” the neutral range. This is in sharp contrast to Powell’s remarks just last month, when he said that rates were “a long way from neutral”. The backtrack is likely due to the change in economic conditions in recent weeks – GDP has been slowing, the stock markets are down and oil prices have fallen. The Fed may have decided that this required an easing up on rate hikes in 2019, and Powell delivered this message to the markets. Just a few weeks ago, there was talk of up to four rate hikes in 2019, but this could be scaled back to just one or two rate increases. Despite Powell’s new dovish stance, the odds of a hike in December have actually increased this week, with the CME pegging the odds at 82%.

China’s manufacturing PMI lowest in almost 2-1/2 years

Lingering uncertainties

Dollar confined to a tight range on month-end ahead of G20

USD/CAD Fundamentals

• Day 1 – G20 Meetings

• 8:30 Canadian GDP. Estimate 0.1%

• 8:30 Canadian RMPI. Estimate -5.2%

• 8:30 Canadian IPPI. Estimate -0.5%

• 9:00 US FOMC Member Williams Speaks

• 9:45 US Chicago PMI. Estimate 58.6

• Day 2 – G20 Meetings

Open: 1.3284 High: 1.3321 Low: 1.3273 Close: 1.3313

USD/CAD Technical

USD/CAD was flat in the Asian session and has edged higher in European trade

• 1.3292 has switched to a support role after gains by USD/CAD on Friday

• 1.3383 is the next resistance line

• Current range: 1.3292 to 1.3383

Further levels in both directions:

• Below: 1.3292, 1.3198, 1.3099 and 1.2970

• Above: 1.3383, 1.3461 and 1.3552