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USD/CAD Forecast: NAFTA nirvana needed after crude cannot help CAD

  • The USD/CAD had a busy week with many forces pulling it in different directions.
  • A lighter week awaits it on the calendar, but the pair has lots of other reasons to move.
  • The technical picture for the USD/CAD remains bearish despite the rise. 

BOC half-optimistic, rising oil, but also rising US yields

After a solid start, the tables turned against the loonie.

Rising oil: The prices of petrol reached the highest levels since 2014, extending its gains, this time without the impact of tensions in Syria. Inventories continue falling as demand is ramping up as supply falls. The OPEC-Non-OPEC meeting in Jeddah, Saudi Arabia, yielded a decision to continue limiting production despite the rebalancing of oil inventories and prices. This supports the loonie as well but was the only point of light.

Cautious BOC: The Bank of Canada left the interest rate unchanged at 1.25% as widely expected but raised its forecasts for the potential output of the economy. This implies looser monetary policy for longer. Nevertheless, they also maintained their hawkish bias and intend to raise rates later this year. The USD/CAD advanced on the event but pared some of its gains. This recovery was short-lived.

US yields: 10-Year US Treasury bonds are finally reacting to the hawkish rhetoric by the Fed and the upbeat data such as the beats on housing data. The global benchmark rose above 2.90% and supported the greenback.

Unimpressive data: Canadian inflation fell short of expectations with 0.3% MoM and 2.3% YoY. Core inflation dropped to 1.4% and also Canada's Retail Sales fell flat, short of expectations. This was the final blow for the loonie.

Canadian events: light for the loonie, NAFTA more important

There is only one event scheduled for the week, the Wholesale Sales on Monday. The belated release for February will likely be overshadowed by the ongoing NAFTA negotiations.

The US, Canada, and Mexico are making an effort to conclude the talks before May 1st when Mexico's Presidential Elections campaign begins. Most chapters of the deal have been finished, but a final signing is still pending. An announcement about concluding more chapters and striking a deal will likely boost the loonie. 

Here are the upcoming events that will move the Canadian dollar as they appear on the forex calendar:

Canadian calendar events April 23 27 2018

US events: Growth in focus

The US calendar is packed with economic releases with the best being the last. The first estimate of US GDP is forecast to show a minor slowdown in growth from 2.9% annualized in Q4 2017 to 2.3% in Q1 2018. A slow start to the year is not uncommon in the US. Personal consumption will be closely watched.

Beforehand, Monday sees Existing Home Sales and Tuesday New Home Sales. The latter figure has a better correlation with the broader economy. Durable Goods Orders on Thursday serve as a significant hint toward the GDP release, as the data feeds into it. Core orders will be of higher importance. 

Apart from the NAFTA talks, US politics will continue grabbing attention, especially on developments in the Mueller Investigation. 

Here are the critical American events from the economic calendar

US forex calendar events April 23 27 2018

USD/CAD Technical Analysis: surprisingly still bearish

Despite the strong rises, many technical indicators still point down. Momentum is pointing lower and the pair trades below the 50-day Simple Moving Average. Also, the RSI has still not decisively recaptured the 50 level. On the other hand, the USD/CAD is now above the 200-day SMA.

Looking up, the C$1.2764 was a swing high in February and now nearly coincides with the 50-day SMA. Further above, the round number of 1.28 worked as a cushion twice during the month of March. Even higher, 1.2760 separated ranges back when the pair traded at higher ground. 

On the downside, the swing high of 1.2680 works as weak support. 1.2630 was a stubborn cap in April and now switches roles. The April'low of 1.2525 is next.

Canadian dollar technical analysis April 23 27 2018

Where next for USD/CAD?

Despite the recent pressure on the Canadian Dollar, things are improving for the loonie. Oil prices may continue rising and NAFTA seems to be around the corner. The pair may turn around at this juncture. 

 The FXStreet Forecast Poll shows a general bearish tendency but examining the details shows that analysts are quite divided with many neutral and bullish views as well. The recent roller-coaster complicated matters.

More: Trading forex in Europe? This is what the new ESMA regulations mean for you

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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