• Rising oil prices balance the US dollar safety-trade for the USD/CAD.
  • Bank of Canada hikes 0.25% as expected, Fed increase comes in two weeks.
  • War in Ukraine dominates risk perception and trading decisions.
  • The FXStreet Forecast Poll sees an improving Canadian dollar.

The Canadian dollar has failed to capitalize on the jump in oil prices since the Russian invasion of Ukraine. Nor has the loonie benefited from the Bank of Canada's early reversion to a hawkish monetary policy. The risk-aversion flood to American assets and currency over the last two weeks has left the USD/CAD open to further advances if the global political and economic situation deteriorates.

On February 24, as news of the Russian attack was about to strike, West Texas Intermediate (WTI) was trading at $91.92 and the USD/CAD was 1.2744. 

On Friday March 4, WTl closed at $113.48, up 23.5% in seven trading sessions. The USD/CAD finished that day at 1.2725. 

The Bank of Canada (BOC) ended its bond buying program on October 27 when the Federal Reserve was still alluding to transitory inflation, moving to a de facto tightening stance well before its American counterpart. The USD/CAD closed at 1.2354 that day.

On Thursday, BOC Governor Tiff Macklem raised the base rate 0.25% to 0.5% with the USD/CAD opening at 1.2631. Even though there had been no realistic expectation for a 0.5% hike the USD/CAD closed at 1.2681. 

While the standard attributes for currency strength, economic status and central bank monetary policy, have or should have tilted to the Canadian dollar, the Fed dominance of the North American economy and fear of a greater military and economic debacle from the Ukraine war have more than countered these traditional virtues. Over the last four months the USD/CAD has gained 3.1%.

Canadian price data was considerably stronger than forecast. The Industrial Product Price Index climbed 3% in January far ahead of the 0.4% estimate. The Raw Material Price Index rose a remarkable 6.5% on a -0.2% prediction and a 2.7% decline in December. These gains are before the surge in energy prices in late February. Consumer prices in Canada and the US are headed substantially higher. 

American statistics were less important to traders than Federal Reserve Chair Jerome Powell’s two days of testimony in Congress on Wednesday and Thursday. Mr. Powell reaffirmed the central bank’s commitment to launching its inflation campaign with a 0.25% hike at the March 16 meeting.  Much of the questioning from legislators was about the economic risks from the Ukraine war and the likely impact of soaring oil prices on inflation. 

Purchasing Managers’ Indexes for manufacturing and services in the US were better than expected in February with the exception of employment. The service employment index dropped to 48.5, its first trip below the 50 expansion/contraction mark since last July. 

Nonfarm Payrolls in February rose 678,000, considerably more than the 400,000 consensus forecast. Initial Jobless Claims were 215,000 in the final week of February and a two-month low. 

The Ukraine war continues to dominate markets and the USD/CAD. Fed policy, the US labor market, and even soaring oil prices are secondary to the perceived dangers of the conflict. 

USD/CAD outlook

The USD/CAD most recent low in mid-January of this year around 1.2500 came when WTI was trading at $85. Since then WTI has soared 33% and the USD/CAD has gained 2%. That reality is the most pertinent aspect of the potential price movement in the next few weeks.  

The Ukraine war seems to be evolving to a more protracted and difficult conflict than markets anticipated. Oil’s 17.6% increase this week reflects the tremendous uncertainty for any resolution. 

Markets will not reduce risk premiums until there is movement toward a cease fire but such an agreement would also reverse some of the gain in oil prices, leaving the USD/CAD in limbo. Russian energy exports have not been sanctioned so a resolution of the war would not increase supply. 

Russian President Vladmir Putin does not appear to be hedging his bet on the war as yet, and if accurate, that means further combat, casualties and destruction. Current indications are that the safety-trade to the US dollar could be enhanced as the war grows more bitter. 

Canada’s employment figures for February and January exports and imports are the main data points in the coming week. Markets will note but not trade. 

In the US, consumer prices in February are the main news. Immediate Federal Reserve policy is set, but with the headline and core rates expected to accelerate, the effect will be felt in the economic and fed funds projection due at the March 16 meeting. 

The outlook for the USD/CAD is higher, primarily on the safety-trade to the US dollar. . 

Canada statistics February 28–March 4

FXStreet

US statistics February 28–March 4

FXStreet

Canada statistics March 7–March 11

FXStreet

US statistics March 7–March 11

FXStreet

USD/CAD technical outlook

The restricted range of the last six weeks has left the MACD (Moving Average Convergence Divergence) and the Relative Strength Index (RSI) without direction. The downward cross of the MACD line over the signal on March 1 has not widened to a definite sales prediction. The RSI moved above and below neutral by small amounts this week but settled nearly level. Average True Range (ATR) is at its highest point in five months with the market volatility since the Ukraine invasion on March 24. That degree of price movement will likely continue as the conflict show no sign of ending. 

The 21-day moving average (MA) and the 50-day MA have been crossed and recrossed in five of the last six trading sessions. The exception was Thursday where the open at 1.2631 and the close at 1.2681 were below both averages. The volatility of the market since the Russian invasion on Feb 24 has not produced a definitive direction. The 21-day MA at 1.2719 and the 50-day at 1.2684 are support as is the 100-day MA a bit lower at 1.2648. 

Resistance: 1.2740, 1.2765, 1.2800, 1.2840

Support: 1.2705, 1.2670, 1.2640, 1.2620

FXStreet Forecast Poll

The FXStreet Forecast Poll  has limited bearish potential out to one quarter stemming from the tight ranges of the last six weeks. 

 

 

 

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