USD/CAD Forecast: Rising in the broad downtrend and eyeing inconsistent inflation

  • The Canadian Dollar moved on NAFTA hopes and Canada's relations with Saudi Arabia.
  • The inflation report is the critical event on the calendar.
  • The pair bounced off downtrend support and is looking for a direction. The FX Poll shows gradually rising prices.

This was the week: More NAFTA, the souring with the Saudis, and a mixed jobs report

Canada denounced Saudi Arabia for a violation of human rights, and the response was swift. The diplomatic spat may have economic consequences on Saudi investments in Canada and on other industrial relations. The loonie dropped on the news.

NAFTA talks, centered on cars, are proceeding between the US and Mexico. A report suggested that Canada main rejoin the talks soon after a deal is struck on automobiles. The positive development pushed the C$ higher.

The crisis in Turkey was also felt in Canada. The fall of the Turkish Lira caused concern for the European Central Bank and triggered a risk-off atmosphere. The Canadian Dollar surrendered to the strengthening US Dollar.

The Canadian jobs report was mixed. The nation gained 54,100 jobs in July and the unemployment rate fell to 5.8%, both better than expected. However, 82,000 part-time positions were added while full-time jobs were lost. Moreover, wage growth slowed to 3% YoY. All in all, a mixed report that will likely may the life of the Bank of Canada more complicated. 

Canadian events: Inflation report in the limelight, and NAFTA as always

Canadian events kick in only on Thursday with Manufacturing Shipments for June and the ADP jobs report. While it is released after the official one, markets are still watching.

The principal event is on Friday: the inflation report for July. Canada's Consumer Price Index rose by 2.5% in June, reflecting mostly an increase in energy prices. Core CPI was subdued at 1.3%, showing that underlying costs are not going anywhere fast. The latter figure carries more weight and is eyed by the Bank of Canada. The inflation report is usually published alongside the Retail Sales figures, but this time inflation will have the full spotlight. 

As always, any development on the NAFTA negotiations will have a significant impact on the loonie. Talks have been advancing in recent weeks, but there is no white smoke. Markets expect a deal, but nothing is specific. A setback in negotiations could send the C$ plunging while further progress can support it.

Here is the Canadian calendar for this week.

Canada macro economic events August 13 17 2018

US events: Retail sales stand out 

The US Retail Sales report for July is not only important as a top-tier economic gauge in its own right but also as an early indicator for GDP in the third quarter. All the measures are expected to rise, and Retail Control Group has the most significant impact. It is the "core of the core."

On Thursday, the US publishes a big bulk of second-tier figures that include housing and manufacturing. If they all go in the same direction, the greenback is set to move. In many cases, they offset each other.

Friday sees the publication of the preliminary Consumer Sentiment Index which has been stable of late. It is a forward-looking indicator of consumption.

Here are the critical American events from the forex calendar

US macro economic gauges

USD/CAD Technical Analysis

The Dollar/CAD is trading within a broad downtrend channel, marked with thick black lines on the chart. Momentum remains to the downside while the Relative Strength Index on the daily graph is balanced. The 50-day Simple Moving Average capped an initial attempt to move higher. The pair is trading above the 200-day SMA.

All in all, the signals are mixed, and the pair is looking for a direction.

1.3045 capped the USD/in early June and still plays a role. 1.2960 was a low point in early August. Further down, we find 1.2860 as a swing low in early June and much lower, 1.2730 that was a low point back in May.

1.3100 remains a battle line. Further up, 1.3220 capped the pair in mid-July. 1.3295 was a stubborn cap later in July, and 1.3380 was the peak in June. 

USD CAD technical analysis August 13 17 2018

USD/CAD Sentiment

As long as NAFTA talks continue and do not suffer a critical crisis, the Canadian Dollar will likely remain supported. The Saudi-Canadian crisis and the Turkish one may fade in their impact. Nevertheless, the US Dollar remains robust with a hawkish Fed and an upbeat economy. All in all, the picture is balanced for the pair.

The FXStreet forex poll of experts shows a bullish short-term bias, a medium-term bearish one, and a long-term bullish one. The targets have not materially changed but targets show a gradual uptrend.

Canadian dollar FX Poll August 13 17 2018

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