USD/CAD Weekly Forecast: Patience, patience, patience

• USD risk premium fades as Canadian, US statistics improve.
• Rising Covid cases in the US are not impacting the USD/CAD.
• USD/CAD restricted to 1.3500-1.3700 for two weeks.

The contest between improving economic statistics in the United States and Canada and the fear that rising virus case in the US will force imposition of another round of business closures kept the USD/CAD within the range of the last two weeks with one brief foray higher on Monday and Tuesday.

Monday’s open at 1.3687 was nearly the high for the week, 1.3705 takes that, and Friday’s finish at 13548 tells the story.  It was the lowest close since June 22. Initial support is at 1.3500 with resistance at 1.3630.

Canada’s May economic data, like that of the US was encouraging. The raw material price index which measures prices paid by domestic manufacturers rose 16.4% after falling 13.4% in April and more than tripling the forecast for a drop of 7.5%.   For the resources heavy Canadian economy rising commodity prices are welcome. Industrial product prices which tracks prices for commodities sold by Canadian producers rose 1.2% in May following a 2.3% drop in April.

Gross domestic product fell less than expected in April, -11.6% vs -13.0% suggesting a better May.

Exports rose in May to C$34.61 billion from C$32.45 billion in April though they remain far below the C$52.51 peak of last May. Imports dropped to C$35.29 billion from C$36.71 in April.

USD/CAD outlook

Despite the improving economic outlook the USD/CAD is subject to the quiet but unallayed pandemic fears.  With the case load largely in the US It is possible, should shutdowns reoccur, that the dollar will be singled out for impact rather than boosted in a generalized return to risk-aversion.

While cases are rising in many US states, fatalities are not and hospitalizations remain with operational limits. The impact of this round of infections seems to be quite different than the initial surge in April and May but it will yet take a few weeks to see if the apparently less dangerous profile is accurate.

Unless the virus data changes the USD/CAD will likely continue its slow summer decline.

Canada statistics June 29-July 3

Monday

The raw material price index jumped 16.4% in June, reversing the -7.5% forecast and April’s 13.4% decline.

Industrial prices, which measures changes for major commodities sold by Canadian firms rose 1.2% in May after falling 2.3% in April.

Building permits climbed 20.2% in May more than replacing the 15.4% drop in April.

Tuesday

Monthly GDP tumbled 11.6% in April a bit less than the 13% forecast but worse than the 7.5% drop in March.

Thursday

The international merchandise trade balance was –C$0.6 billion in May much less than the –C$ 3 billion estimate and April’s C$4.27 billion deficit.

Markit manufacturing PMI rose to 47.8 in June from 40.6

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US statistics June 29-July 2

Monday

The Dallas Fed Business Index for regional manufacturing climbed sharply to -6.1 in June from -49.2 in May far outstripping the -59 consensus.

Tuesday

The Conference Board consumer confidence index for June rose to 98.1 from     easily topping the 90 forecast.

Fed Chairman Powell and Treasury Secretary Mnuchin testified before the House Financial Services Committee as required by the CARES Act relief bill.  Mr. Powell was more optimistic than at the FOMC press conference earlier in the month but stressing the extraordinary uncertainty of the economic outlook with the virus only partially checked.

Wednesday

The Institute for Supply Management manufacturing PMI returned to expansion at 52.6 in June, unexpectedly beating the 49.5 prediction and up from 43.1 in May. New orders jumped to 56.4 in June from 31.8 in May in the largest one month gain in the 78 years of the index. Economists had forecast 36.1. The employment index rose to 42.1 from 32.1 missing the 43 projection.

Construction spending fell 2.1% in May after April’s revised 3.5% decline.

Thursday

Non-farm payrolls added 4.8 million jobs far more than the 3 million forecast and the May total was revised 190,000 to 2.699 million. The unemployment rate fell to 11.1% from 13.3% in May, 12.3% had been predicted.  Average hourly earnings dropped 1.2% on the month as lower-paid workers were rehired and rose 5% on the year.  The labor force participation rate climbed to 61.5% from 60.8% in May.  The underemployment rate dropped to 18% from 21.2%.

Initial jobless claims fell to 1.427 million in the June 26 week, higher than its forecast for the third week in a row from 1.482 million. The four-week moving average decreased to 1.503 million from 1.621 million.

Canada and US statistics summary June 29-July 2

The more extensive and timely US statistical reporting presents a picture of a rapidly improving US economy but that will matter not at all to the markets if the Covid pandemic return the US to partial  or complete closure.

Rising virus case in several large states have not as yet returned the risk-premium to the dollar and there is a reasonable case to wonder if it will. 

If the US is alone in a new bout of defensive business closures while, for instance, Canada has none, markets might view this quite differently than when the entire world was in the first throes of an unknown pandemic.   It is too early to tell if the pandemic will shutter state economies in the US but the possibility is likely to loom large in the weeks ahead.

Canada statistics July 6-July 10

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US statistics July 6-July 10

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USD/CAD technical outlook

The relative strength index has drifted into negative territory with the week's decline but it has little indicative value. The moving averages have an interesting layout. The 21-day average  at 1.3558 is just above the Friday close at 1.3548 and marked the low on Wednesday. The 100-day average is far above the market at 1.3810 and the 200-day is at 1.3496 offering support to the 1.3500 support line. 

Resistance: 1.3633; 1.3716; 1.3780; 1.3870; 1.4000; 1.4115

Support: 1.3500; 1.3415; 1.3312; 1.3200; 1.3160; 1.3035

USD/CAD sentiment poll