USD/CAD fluctuates around 1.3420 on risk aversion as US manufacturing activity shranks

• The USD/CAD halted its fall as US data showed signs of further deterioration in the economy of the United States.
• Risk aversion spurred by weaker-than-expected US ISM Manufacturing PMI.
• Fed’s Bowman said there’s work to do by the US central bank.

The USD/CAD trims some of Wednesday’s losses spurred by a weak ISM Manufacturing activity report which threatens to tap the economy of the United States (US) into a recession. However, dovish commentary by the Federal Reserve (Fed) Chair Jerome Powell capped the USD/CAD gains. At the time of writing, the USD/CAD is trading at 1.3420.

Sentiment shifted negatively as US ISM Manufacturing PMI flashes a recession

Investors’ mood deteriorated after the Institute for Supply Management (ISM), released the Manufacturing PMI report for November, which dropped to the contractionary territory at 49.0, beneath 49.2 expectations, and trailed October’s 50.2. Timothy Fiore, the ISM’s Manufacturing Business Survey Committee chair, said the report “reflects companies’ preparing for lower output.” Additionally, the US Department of Labor (DoL) revealed that Initial Jobless Claims for the last week increased by 225K, below the expected 235K by analysts and less than the previous week’s reading.

Earlier, the US Department of Commerce (Doc) revealed that the Fed’s preferred inflation gauge, the US Core Personal Consumption Expenditure (PCE), rose by 5% YoY, below the previous month’s 5.2% reading, and aligned with consensus.

Elsewhere, the US Federal Reserve Chair Jerome Powell gave the green light to slow rate hikes. He said moderation could happen as soon as the December meeting, though he emphasized the Fed’s commitment to tackle inflation. Echoing some of his comments was Fed Governor Michell Bowman, saying,” We still have a lot of work to do to bring our policy rate to a level that is sufficiently restrictive to bring down inflation over time.”

Aside from this, the Canadian economic calendar, which featured November’s S&P Global PMI Manufacturing report, persisted in contractionary territory for the fourth consecutive month, rising by 49.6 above October’s 48.8. Paul Smith, economics director at S&P Global Market Intelligence, said, “Both output and new orders continued to fall, although perhaps of some comfort is that the degrees of decline were softer than in October.”

All that said, the USD/CAD daily chart showed the major found support at around 1.3400, though it failed to crack the confluence of the 20 and 50-day Exponential Moving Averages (EMAs) around 1.3440/45. That could pave the way for a break under 1.3400, sending the pair sliding toward the 100-day EMA at 1.3321. Otherwise, the USD/CAD might consolidate around the 1.3400-1.3440 area.

What to watch

The US and Canadian economic dockets will feature employment figures, which could shed some clues about the current economic status.

USD/CAD Key Technical Levels