USD/CAD to run toward 1.34-1.35 on upbeat US economy data

USD/CAD posted a first weekly gain in two months after opening at 1.3064 on Monday and finishing at 1.3178 on Friday as a sharp drop in oil prices weighed on Canadian economic prospects and the Bank of Canada (BoC) stressed that the pandemic recovery is a long-term project. Joseph Trevisani, an analyst at FXStreet, believes USD/CAD downside momentum looks increasingly tired and expects a rally towards the 1.34-1.35 zone.

Key quotes

“The BoC left its main interest rate unchanged at 0.25% as universally expected and maintained its quantitative easing program. Governor Tiff Macklem noted that while the Canadian economy had had a strong recovery from the pandemic closures he expected the pace of the improvement to start to slow.”

“The September 1 drop to 1.2994, the first time the USD/CAD had been below 1.3000 since January 8 is beginning to look like the post-pandemic bottom. The brief foray, the lack of subsequent attempts and the firm support at 1.3040 argue that the USD/CAD has exhausted its downward momentum.”

“The weak US dollar scenario which was behind the general August decline in the greenback was based on the suspicion that the American economy was entering a second wave COVID-19 retraction. Though that did not occur there has not been sufficient improvement in US statistics, particularly the still high weekly unemployment claims numbers, for a full reverse. The US economy is not retreating but it is not advancing strongly either and the indecision has infected the dollar.”

“Because the current level of the USD/CAD is the result of a misapprehension of the US economy the potential for a run to the 1.3400-1.3500 range of July is likely. All that is required is the cooperation of the US economy.”