• China rate cut temporarily boosts risk sentiment on Friday.
  • USD/CAD drops to two-week low at 1.2777, closes at 1.2839.
  • Canadian CPI and core higher than forecast in May.
  • FXStreet Forecast Poll is neutral out to one month.

Improving global risk sentiment helped the Canadian dollar to a winning week for the first time in two months with the USD//CAD falling from 1.2924 to 1.2840.

The People's Bank of China (PBoC) made a surprise cut to its 5-year interest rate (Loan Prime Rate) in an effort to support the economy battered by lockdowns from Beijing’s zero-Covid policy. Canadian consumer prices ran hotter than expected in April, 6.8% on the year vs the 6.7% forecast and 5.7% on a 5.4% estimate for the core index. The Bank of Canada (BoC) meets in 12 days on June 1 and is expected to raise the cash rate another 50 basis points to 1.5%. 

Federal Reserve Chair Jerome Powell and other US bank officials continued to sound harsh notes against inflation this week, but the dollar’s long ascent took a general breather as the greenback lost ground in all major pairs. There is a good deal of market doubt that the Fed could continue to raise rates if a recession strikes the US economy. 

Recession fears in the US pummeled Treasury yields with the 10-year losing 14 basis points to 2.788%. Equities managed a last minute reprieve on Friday but still finished lower for the eighth week in a row. The S&P 500 briefly touched bear market territory, normally defined as down 20% from, in this case, January’s record high.

Oil assisted the loonie’s gain as West Texas Intermediate (WTI) added 1.3% to $109.83. Except for Monday’s close at $111.59, it was the best finish for WTI since March 25.

In the US, Retail Sales for April were better-than-expected and gave a temporary boost to stocks. Building Permits dropped sharply in April. Existing Home Sales, 90% of the US market, fell to a 22-month low. Home purchases have been axed by rising mortgage rates which reached a 13-year high at 5.25% this week. 

USD/CAD outlook

The USD/CAD stayed below 1.2900 which has marked the upper side of its nearly year-long range. The early May break to a high of 1.3076 has proven to be false with USD/CAD lasting just one session above 1.3000 and one above 1.2900. 

Slipping US Treasury rates have undermined the USD/CAD and will continue to do so if they continue to come off. The Fed’’s tightening campaign has a 96% expectancy for a total 100 basis point hike through the June 27 meeting, so a wholesale decline in Treasury rates is unlikely.

The Atlanta Fed’s latest GDP Now estimate for the second quarter is 2.4% and has gone up since early May. 

Next week, Canadian Retail Sales will provide insight for the domestic economy but will not move the USD/CAD.  

In the US, Durable Goods orders for April should repeat the Retail Sales information. First quarter GDP receives its first revision, any surprise here could impact markets. Large adjustments to GDP are rare but they do happen. Personal Spending for April will be interesting as the Bureau of Economic Analysis authors a real spending series with the figures corrected for inflation. It is not widely covered but will be far more telling for the state of the consumer and  the economy than the nominal numbers of retail sales or personal spending.. 

The USD/CAD remains subject to the general market risk appetite, commodity prices and changes in perceived Federal Reserve policy, especially for US economic developments that might inhibit the bank’s rate policy. 

The USD/CAD outlook is neutral and well-contained within recent ranges. 

Canada statistics May 16–May 20

FXStreet

US statistics May 16–May 20

FXStreet

Canada statistics May 23–May 27

FXStreet

US statistics May 23–May 27

FXStreet

USD/CAD technical outlook

The MACD (Moving Average Convergence Divergence) on Monday does not seem to be a signal for a general trend but a product of the steep drops on Friday and Monday and particularly the rapid loss of 1.3000 and 1.2900. The divergence bears watching. The Relative Strength Index (RSI) has fallen since the high trade in USD/CAD on May 12 and is back to neutral. The Average True Range (ATR) remains near its highest level since last October but as with the indicators above, that is the result of the brief foray above 1.2900, rather than a promise of equal volatility ahead. 

Resistance: 1.2865, 1.2880, 1.2925, 1.2960

Support: 1.2825, 1.2800, 1.2775, 1.2750

Moving Averages: 21-day 1.2864, 50-day 1.2699, 100-day 1.2694, 200-day 1.2660

FXStreet Forecast Poll

The FXStreet Forecast Poll is neutral out to one month as the support beneath the market will retard any movement lower and the rapid failure above will peclude another attempt. 

 

 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD has lost its bullish momentum after having climbed above 1.0570 with the initial reaction to the US data in the American session and retreated toward the mid-1.0500s. On a weekly basis, the pair remains on track to close in positive territory. 

EUR/USD News

GBP/USD struggles to hold above 1.2300

GBP/USD struggles to hold above 1.2300

GBP/USD has edged lower following a jump above 1.2300 in the early American session on Friday. The market mood remains upbeat ahead of the weekend with Wall Street's main indexes posting strong daily gains on upbeat US data. 

GBP/USD News

Gold stays below $1,830 as US yields edge higher

Gold stays below $1,830 as US yields edge higher

Gold continues to fluctuate below $1,830 on Friday and looks to close the second straight week in negative territory. Fueled by the risk-positive market environment, the benchmark 10-year US Treasury bond yield is up more than 1% on the day, limiting XAU/USD's upside.

Gold News

Why Cardano could surprise over the weekend

Why Cardano could surprise over the weekend

ADA  set to close out the week with a gain on the workday trading week and over the weekend? Central banks signaled that the rate hike cycle is ending, meaning less stress and tight conditions for trading, opening up room for some upside potential with Cardano set to pop above $0.55 and test a significant cap.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures