USD/CAD slides below 1.2950 on soft US dollar ahead of Powell’s speech

• USD/CAD dropped 0.15% on Thursday as market players prepare for further hawkish rhetoric from the Fed.
• US GDP Q2 figure, albeit better than expected, is still in recessionary territory.
• USD/CAD Price Analysis: Traders reclaiming 1.3000 to open the door for YTD high test; otherwise, a fall towards 1.2800 is feasible.

The USD/CAD slides towards new weekly lows in the North American session amidst a positive market mood, spurred by China’s 1 trillion CNY stimulus, aimed to fix the housing and construction crisis. Meanwhile, traders prepare for Fed Chair Jerome Powell’s Jackson Hole speech on Friday.

The USD/CAD hit a daily high of around 1.2975, before diving towards its daily low, around 1.2895, while crude oil prices edged higher. However, it bounced off the lows, above the 1.2900 psychological figure. At the time of writing, the USD/CAD is trading at 1.2947, down 0.15% on the day.

The USD/CAD slid on broad US dollar weakness. The US Dollar Index, a gauge of the buck’s value vs. a basket of peers, loses 0.18%, down at 108.405, courtesy of market participants moving to the sidelines or profit taking before Powell’s speech. In the meantime, US Treasury bond yields receded from weekly highs, particularly the 10-year T-note rate down one bps, at 3.095%.

Growth in the US, as measured by the Gross Domestic Product (GDP) for the second quarter of 2022, on its second reading, beat expectations. Still, flashes recessionary signs at -0.6%, higher than 0.8% estimates.

At the same time, Initial Jobless Claims for the week ending on August 20 came lower than estimates, at 243K, vs. 253K expected by market analysts. The fall in unemployment claims continued showing a robust labor market, further fueling expectations of a 75 bps Federal Reserve rate hike.

In the meantime, Fed officials led by Kansas City Fed Esther George said that the US central bank would hold rates above 4%, and want to see a full quarter of consistent inflation data to know where things are going.

Earlier, Atlanta’s Fed Raphael Bostic said he’s undecided to go 50 or 75 bps and emphasized that expectations of a Fed pivot are “misguided.” Echoing his comments was Philadelphia’s Fed Patrick Harker, who said that he likes to see the Federal funds rate (FFR) at 3.4%, and then perhaps stay for a while there. He supports a 50 bps increase but wants to see the next inflation report.

What to watch

With Jerome Powell’s speech at Jackson Hole, an absent Canadian docket will leave traders leaning on US dollar dynamics. Still, earlier, US inflation figures, namely the PCE Price Index and core PCE, would shed some light, as it’s the Fed’s favorite gauge of inflation.

USD/CAD Price Analysis: Technical outlook

The USD/CAD exchanges hands nearby the 50-day EMA, at around 1.2912, even though it reached a daily low of 1.2864. From a daily chart perspective, the USD/CAD remains tilted upwards, despite the Relative Strength Index (RSI) aiming down towards the 50-midline, signaling selling pressure gathering momentum. However, if the RSI breaks the midline, expect some downward pressure, putting into play the 50 and 20-day EMAs, each at 1.2912 and 1.2883, respectively. On the other side, if the USD/CAD breaks above 1.3000, a retest of the YTD highs is on the cards.