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USD/CAD Forecast: Loonie rocked by NAFTA drama ahead of the BOC, jobs

  • The breakthrough between the US and Canada sent the loonie higher but uncertainty sent it down.
  • The new month begins with the rate decision and the jobs report.
  • The technical picture looks bearish for the pair while the FX Poll shows a mildly bullish tendency on all timeframes. 

This was the week: New NAFTA has arrived

The week started with the dramatic announcement about an agreement between the US and Mexico after both countries compromised on a few contentious topics. While Mexico wants Canada in the deal, Trump said it could either be an agreement with the northern neighbor or tariffs.

The news sent the Canadian Dollar higher on the assumption that Canada will join. At the time of writing, both sides are still optimistic despite difficulties. Comments from Canada's Foreign Minister Chrysita Freeland suggest the deal is not so close. Anything can happen as markets close and over the weekend. It can go either way. 

Every NAFTA-related headline continues moving the USD/CAD more than anything else.

Elsewhere, the US is intent on imposing new tariffs on China while some emerging market currencies struggle against the greenback. The loonie, a risk currency, stayed mostly immune to these developments. Analysis: Trade wars: $200 billion is serious, 3 scenarios and currency reactions for the upcoming escalation

US GDP was upgraded to 4.2% annualized QoQ, but not all figures beat expectations. In Canada, GDP slightly missed expectations with a gain of only 2.9% annualized.

Canadian events: BOC and jobs report

The Bank of Canada convenes on Wednesday and is set to leave the interest rate unchanged at 1.50% after raising it last time. Governor Stephen Poloz will not hold a press conference this time, and a shift in policy may wait for the next rate decision.

Recent signs have been positive for the Canadian economy, and the NAFTA relief may pave the way for more moves. Concerns about protectionism stood out in the previous statement the BOC released, and they will surely address recent developments in the upcoming one.

The second big event is the publication of the jobs report for August. Canada saw a jump of 54.1K positions in July, albeit full-time jobs were lost and part-time ones were gained. The unemployment rate dropped to 5.8% and is now set to rise. Annual wage growth has grown in importance. 

Here is the Canadian calendar for this week.

US events: Buildup to the NFP and tariffs on China 

Trade relations with China are set to take center stage. The US is set to slap duties on $200 billion worth of Chinese goods, in a considerable escalation of the trade wars. China is due to retaliate. The US Dollar is set to gain on a deterioration in global commerce, as the recent reactions have shown. A delay or an unlikely deal will send the greenback down.

The calendar is also quite busy. The ISM purchasing managers' indices are set to recover in August after a slide in July while the ADP NFP carries expectations of a more modest increase in jobs. The data serve as a warm-up to the all-important Non-Farm Payrolls report on Friday.

Headline NFP disappointed in July with an increase of only 157,000 positions while wages came out at 0.3% MoM and 2.7% as expected. Job gains are projected to increase at a faster pace while salaries carry expectations for acceleration to 2.8% in the annual measure.

Here are the critical American events from the forex calendar: 

USD/CAD Technical Analysis

The USD/CAD continues trading in a broad downtrend channel and is in the middle of it. It trades between the 50 and 200 Simple Moving Averages. Momentum is to the downside, but the Relative Strength Index is balanced.

1.2960 was a low point in early August. It is followed by 1.2880, the trough at the end of the month. Further down, 1.2820 worked as a line of support in late May, and 1.2730 was a swing low earlier that month. 

1.3040 was a support line in mid-August and also in late July. 1.3100 is a round number and also held the pair down in mid-August. Further up, 1.3175 was a stubborn line around that time.

USD CAD technical analysis September 3 7 2018

USD/CAD Sentiment

Assuming Canada jumps on the new NAFTA wagon, it is hard to ruin the party for the Canadian Dollar. The worst would be behind it. If not, the loonie will plunge. The BOC will react to the news and the jobs report will likelty have a limited impact given the sheer size of NAFTA's impact. In short: it is all about NAFTA.

The FXStreet forex poll of experts shows a bullish tendency on all timeframes. Price targets are not very different from current levels and have not changed too much. It seems that the experts are cautious about NAFTA.

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Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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