• Loonie suffered a pullback as the US benchmark Treasury yields rose to a seven-and-a-half year high of 5.259% triggering global equity markets selloff.
  • The IMF lowered the world growth outlook on trade uncertainty, weighing on commodity currencies.
  • The USD/CAD is currently stuck to sideways trend and the currency pair needs to break above 1.3090 to resume the uptrend targeting cyclical highs of 1.3380.
  • FXStreet Forecast Poll turned extremely stable for the USD/CAD prediction from 1-week to 3-month time from now predicting FX rate of around 1.3050. 

The USD/CAD was trading within a range of 1.2930-1.3072 over the second week of October with the prevailing trend upwards. The US Dollar traded on a shaky grounds at the beginning of the week, but the US Treasury yields surged to a seven-and-a-half year high of 5.259% over the week supporting the US Dollar strongly.

Rising Treasury yields saw global equity markets falling sharply, with losses concentrated to Wednesday trading session after the International Monetary Fund downgraded the world economic growth outlook by 0.2% compared to April edition.

Equity markets tumbled on the combination of trade war fears and the outlook for the US rate increases while commodity currencies were hit hard by the worsening outlook for emerging markets superpowers like China and India that represent key trading partners for economies like Australia and New Zealand. The Canadian Dollar also suffered a pullback towards 1.3070 amid global equity market rout. The rest of the second week saw Loonie stabilizing at stronger levels closing the week at around 1.3030 on Friday.

In the week ahead, Canada’s macroeconomic calendar will see the duo of retail sales and inflation report due on Friday, October 19. While core retail sales excluding auto sales are expected to fall by -0.2% over the month in September, core inflation is expected to accelerate to 1.8% over the year. The combination of rising inflation a falling retail sales is expected to support the Canadian Dollar only in case the retail sales surprise on the upside together with the upside surprise in core inflation as such combination would yield the higher likelihood of the Bank of Canada raising rates. 

Canada’s economic calendar October 15-19

The contrasts with the US economic calendar that will see the retail sales report right at the beginning of the third week of October and the September FOMC meeting minutes on Wednesday next week. As long as the US economy keeps on rolling the good news and the policymakers indicate that further interest rate increases are justified, Canadian Dollar will be under increased pressure backed by the rate outlook. 

US economic calendar October 15-19

Technically, the USD/CAD is trading within the sideways trend since reaching the cyclical peak at around 1.3380 on June 27. The 1.2930 line representing the 38.2% Fibonacci retracement of the uptrend from 1.2270 to 1.3350 served as a solid support for USD/CAD. Only the break below that barrier would open further potential on the downside. Given the fundamental and interest rate outlook, the upward potential for USD/CAD seems more feasible. The currency pair needs to break above 1.3090 representing the confluence of the trendline resistance and 23.6% Fibonacci retracement of the above-mentioned move to break further higher. Momentum is in the neutral territory and both MACD and Slow Stochastic are pointing upwards on a daily chart.

USD/CAD daily chart

FXStreet Forecast Poll

The FXSTreet Forecast Poll is expecting extreme FX market stability for the USDCAD in a 1-week, 1-month and 3-months time from now with the average forecasts of 1.3046, 1.3057 and 1.3050 for the corresponding periods.

That means that the majority of the forecasters still expects bullish trend on USD/CAD to prevail with 50% of forecasters bullish for 1-week and 1-month predictions while 39% of forecasters are also bullish for a 3-month period of time.

FXSTreet Forecast Poll

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