USDCAD at key juncture ahead of US CPI and Canadian jobs data

After this morning’s big moves in the Turkish Lira, euro and pound, and the sizeable stock market falls, more volatility is expected in the early North American session. That’s because we will have important data from both the US and Canada, making the USD/CAD a particularly interesting pair to watch when the data are released at 13:30 BST (08:30 EDT). From the US, we will have consumer inflation figures for July while from Canada we will get to see how well or otherwise the jobs market held in the same month.

The US dollar has been on a general upward trend for several months with occasional pullbacks against certain currencies, as market participants speculated over the prospects of two further rate increases from the Federal Reserve. This trend may continue should inflation start to accelerate, which is quite possible due in part to the impact of higher input costs as a result of the import tariffs. Meanwhile the Canadian dollar has also been a relatively stronger footing as the Bank of Canada hiked interest rates and warned of further tightening in the months ahead. Today, two strong currencies will therefore go head to head and we could see a sharp move in one relative to the other.

US Consumer Price Index (CPI) is expected to have risen modestly on a year-over-year basis to 2.9%, while core is seen steady at 2.3 percent. On a month-over-month basis, both figures are expected to print 0.2% each. Meanwhile Canadian employment is expected to have risen by an additional 17 thousand jobs in July after June saw a rise of almost 32 thousand in net employment.  The unemployment rate is seen falling to 5.9% from 6.0% previously. The employment report would be considered strong if these expectations are met or bettered, and if boosted by full-time rather than part-time jobs.  

Ahead of the above data releases from North America, the USD/CAD was holding its own relatively well at just below the 1.31 handle at the time of this writing. Having suffered a sizeable drop since the end of June and through July, the USD/CAD has bounced back at the start of this month as long-term support at around 1.30 held upon re-test. Technically though, it is not out of the woods just yet as we have not created a higher high yet. What’s more, price is bang at resistance here with 1.3120 being a former support level. Thus, there is a possibility for rates to head lower from here again, particularly if today’s incoming data supports the bearish case (US CPI weaker and/or Canadian jobs stronger). However if price starts to move north of 1.3120 and hold there on a daily closing basis then this should be USD/CAD-positive for early next week. Additional resistance could potentially come in around the Fibonacci retracement levels against the recent high, as per the chart. Support, meanwhile, is seen at around 1.3050/70 area. We would turn decisively bearish on this pair in the event it goes below 1.2950, the last low prior to the latest rally. The higher lows are still intact which means the trend is still bullish for the Loonie.