USD/CAD Weekly Forecast: Moderate risk-aversion is not panic

The USD/CAD saw its second weekly rise in June as rising virus cases in the US and elsewhere prompted a return to the dollar and a moderate risk-premium.  

Opening at 1.3608 on Monday the pair closed lower at 1.3522 just above the 1.3515 support then rose each of the four days to week end finishing on Friday at 1.3687.  It was the highest close since May 29 and brought the USD/CAD to just below the little traded range between 1.3700 and 1.3800.  The bottom of the pandemic panic range at 1.3900 should offer substantial resistance.

There were no Canadian statistics released this week and the only economic event of note was the first speech by the new governor of the Bank of Canada Tiff Macklem where he predicted a return to growth in the third quarter as containment measures are lifted.  He warned that the rebound will be uneven and that the bank will continue to buy government bonds until the economic recovery is “well underway.”

In contrast, American statistics provided some positive news and support for the US currency as durable goods orders in May returned almost 90% of their April plunge. Manufacturing and services purchasing managers indexes for June rose sharply with factory sentiment nearly reaching expansion. 

The percentage increase in new home sales was almost five times its prediction as first time buyers took advantage of the lowest mortgage rates on record. Personal spending in May seconded the performance of retail sales and durable goods, gaining 8.2%, erasing two-thirds of the 12.6% April decline though missing the 9% forecast.

American consumers were widely expected to return to the stores with their usual panache but how much of the welcome rebound was from two months of deferred spending and how much will carry over into June is an open question.

Unemployment claims have been near 1.5 million for three weeks belying two forecasts for a drop to 1.3 million though continuing claims did fall below 20 million for the first time in eight weeks. 

USD/CAD outlook

Risk consideration will continue to provide the analytical framework for the USD/CAD.  It seems unlikely that markets will return to the full-bore panic of March but the dollar advantage will remain until it is clear that the new higher case load will not prompt another round of economic closures.

States and localities in the US appear far better able to handle the hospitalization rates this time around but background nervousness will continue to infect markets and support the USD/CAD.

Canada statistics June 22-June 26

US statistics June 22-June 26

Monday

Existing home sales, 90% of the US housing market, dropped 9.7% to 3.91 million annualized in May from 4.33 in April, 4.12 million had been projected.

Tuesday

IHS Markit manufacturing PMI rose to 49.6 in June from 39.8 in May on a 48 prediction. Services increased to 46.7 from 37.5 on a 46.5 forecast.

New home sales jumped 16.6% to 0.676 million annualized in May from0.58 million in April, 0.64 million had been anticipated.

Thursday

Durable goods orders rose 15.8% in May well ahead of the 10.9% predictions after an 18.1% drop in April. Orders ex-transport rose 4% following the 8.2% fall in April. Non-defense capital goods orders, the business investment proxy climbed 2.3% on a 1% forecast, after falling 6.5% in April.

First quarter GDP was confirmed at -5% annualized.

Initial jobless claims rose 1.48 million in the June 19 week, more than the 1.3 million forecast though down from 1.54 million the prior week. Continuing claims slipped to 19.522 million in the June 12 week from 20.289 million previously.

Friday

Personal spending in May rose 8.2%, under the 9% estimate and about two-thirds of the April 12.6% loss. Personal income fell 4.2% in May, less than the 6% forecast and the 10.8% gain in April. A decline in income was expected as the CARES Act stipends were paid in April but not May.

The PCE price index added 0.1% on the month 0.5% on the year in May up from -0.5% monthly and 0.6% in April.  The core index rose to 0.1% in May from -0.4% in April and was unchanged at 1% on the year.

Canada statistics June 29-July 3

US statistics June 29-July 3

USD/CAD technical outlook

With the two-week ascent reaching a highest point in a month the relative strength index has peeked above the neutral line for the first time since May 15. 

There is a sharp divergence in the moving averages. The 21-day is still beholden to the decline from the pandemic panic ranges above 1.3900 and at 1.3555 it was crossed on Wednesday during the week's largest climb. The 100-day at 1.3796 reinforces the 1.3800 resistance line and the 200-day at 1.3487 is a distance backstop for support at 1.3525.

Resistance: 1.3750; 1.3800; 1.3870; 1.3950; 1.4000

Support: 1.3640; 1.3580; 1.3520; 1.3435; 1.3320

USD/CAD sentiment poll

The week's gain has turned the one week outlook neutral with almost double the tied percentages for up or down.  Longer term the outlook remains bullish though of diminishing strength and lower forecasts.  Clearly the rise of the last three weeks has run its course.