After USD/CAD reached parity last week, it made a retreat and closed the week higher. This time, the pair went lower, and refuses to run away from parity. If USD/CAD closes the week under 1.0000, it will be set for more losses towards the Canadian rate decision.
USD/CAD is now trading around 1, after another round of struggle around parity. The beginning of the week didn’t shine on the loonie.
While other currencies enjoyed the news about the Greek bailout and celebrated against the dollar with weekend gaps, the Canadian dollar started at the point of the close. When the other currencies relaxed and fell back, so did the loonie. USD/CAD went up towards 1.0100, but stopped short of it, at 1.088, lower than last week’s peak after parity.
From this lower peak, the pair began descending – when it crossed the parity line once again, the drop was deeper – it went as low as 0.9953, lower than last week. Another swing by the greenback already catches the loonie prepared, and it doesn’t give up on parity so fast.
The test will be the close of the week. If USD/CAD closes below 1, this downtrend will probably continue into the next week. If not, the struggle will continue. Friday features Canadian Manufacturing Sales, which are expected to rise by 1%, less than 2.4% last month. A stronger growth there could help the loonie win.
Canadian rate decision coming
Regarding the Canadian dollar, there are bigger challenges next week, with the rate decision being the first and foremost event, due on Tuesday. A hawkish statement could send the pair towards the support line of 0.98, while a dovish statement, together with a close of this week above 1, could send the pair to test 1.01 once again.
According to its own statements, the Bank of Canada is expected to raise the interest rates at the end of June. We’re getting close. In the past, repeating the same statement weakend the C$. Now it will probably leave the price unchanged.
But any change in the statement regarding the interest will rock the pair. If they change the timing of a possible rate hike from the end of Q2 to the end of Q3 or later, the loonie will retreat.
If they omit the words about the interest rates, the market will expect a move to come as early as the next rate decision. There’s also a chance of an immediate rate hike, which could even send USD/CAD towards the next support line of 0.97, but that has a low probability.
This also depends on the price of oil – crude oil fell under $86, and currently doesn’t threat the recent peak of $87.13. Another move upwards there could boost the loonie as well.
All in all, the Canadian dollar is advancing gradually against the greenback. For some traders, these small moves may be annoying, but for the long run, this pair is just making a safe, consistent walk in one direction – down.
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