USDCAD Forecast: Canadian dollar halts slide, U.S consumer inflation remains soft

The Canadian dollar has posted gains in the Thursday session. Currently, USD/CAD is trading at 1.3152, down 0.43% on the day. In the U.S, the focus is on inflation reports. CPI edged down to 0.1%, shy of the forecast of 0.2%. Core CPI remained steady at 0.2%, matching the forecast. Unemployment claims dropped to 214 thousand, easily beating the estimate of 226 thousand. In Canada, the New Housing Price Index remained pegged at 0.0%, short of the estimate of 0.1%. The indicator has not posted a gain since November. On Friday, the U.S releases the UoM Consumer Sentiment report.

The Bank of Canada has been hinting for weeks that a rate hike was coming, and made good on this promise on Wednesday. The Bank raised rates by a quarter-point, bringing the benchmark rate to 1.50%. This is the highest level since December 2008. The Bank followed up with a hawkish rate statement, as policymakers noted that the economy continues to operate close to capacity. The BoC has upwardly revised its growth forecast for Q2 from 2.5% to 2.8%, and projected inflation to climb to 2.5%, before falling to 2% in the second half of 2019. As for the escalating trade war, the BoC said that U.S tariffs on steel and aluminum and retaliatory tariffs by Canada would lower economic growth. However, the effect of the tariffs would be modest, due to strong global demand and high commodity prices. Despite the rate hike and hawkish comments from the BoC, the Canadian dollar lost ground against the greenback on Wednesday.

Investors continue to keep a close eye on the trade war being waged by the U.S and its major trading partners, particularly China. After the U.S and China imposed tariffs on each other of some $30 billion, the Trump administration has raised the ante, threatening to hit China with further tariffs on $200 billion worth of Chinese goods. China cannot retaliate in kind, since it does not import that amount of goods from the U.S. Still, the Chinese can take steps which will make it more difficult for U.S companies to do business in China. The U.S dollar has benefited from the recent trade battles, and if this trend continues, the euro could be facing some substantial headwinds.

Equities shrug off trade tariff tensions

US Inflation Eyed as Markets Pare Losses

• 8:30 Canadian NHPI. Estimate 0.1%. Actual 0.0%

• 8:30 US CPI. Estimate 0.2%. Actual 0.1%

• 8:30 US Core CPI. Estimate 0.2%. Actual 0.2%

• 8:30 US Unemployment Claims. Estimate 226K. Actual 214K

• 10:30 US Natural Gas Storage. Estimate 55B

• 13:01 US 30-year Bond Auction

• 14:00 US Federal Budget Balance. Estimate -92.3B

• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 98.1

Open: 1.3211 High: 1.3219 Low: 1.3150 Close: 1.3152

USD/CAD Technical

USD/CAD ticked lower in the Asian and has posted slight losses in European trade. The pair continues to head lower in North American trade

• 1.3067 is providing support

• 1.3160 has switched to a resistance role following losses by USD/CAD on Thursday. It is a weak line

• Current range: 1.3067 to 1.3160

Further levels in both directions:

• Below: 1.3067, 1.2970 and 1.2831

• Above: 1.3160, 1.3292, 1.3436 and 1.3530