Browsing: Canadian Dollar Forecast

The Canadian dollar continues to head south, as USD/CAD posted gains last week. Investors will be keeping a close eye on consumer spending and inflation, as well as manufacturing sales. Here is an outlook for the highlights and an updated technical analysis for USD/CAD.
There were no major Canadian events last week. ADP nonfarm payrolls sparkled, with a gain of 73.7 thousand. Investors are hoping that this reading translates into a strong reading from employment change in early September. Foreign securities purchases sagged in May, declining by C$3.98 billion. This was much lower than the forecast of $6.55 billion.
President Trump announced a delay on new U.S. tariffs against China, which were set to take effect on September 1. Although the delay is welcome news, a trade agreement between the two countries remains elusive, and further tensions seem likely.
In the U.S., consumer inflation and spending numbers were solid. CPI climbed 0.3% in July, matching the forecast. Core CPI remained steady at 0.3%, beating the forecast of 0.2%. Retail sales rose 0.7%, easily beating the estimate of 0.4%. Core retail sales sparkled with a gain of 1.0%, its best showing since March. On the manufacturing front, the Philly Fed Manufacturing Index slowed to 16.8, but still beat the estimate of 10.1.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:

  1. Manufacturing Sales: Tuesday, 12:30. This key manufacturing indicator posted a sharp gain of 1.6% in May, matching the forecast. The markets are braced for a sharp drop in June, with an estimate of -1.8%.
  2. Inflation Data: Wednesday, 12:30. CPI contracted by 0.2% in June, its first decline in six months. A small gain of 0.1% is projected in July. Core CPI, which excludes the most volatile items in CPI, slowed to zero. Will we see an improvement in inflation in the July release?
  3. Retail Sales Data: Friday, 12:30. Retail sales is the primary gauge of consumer spending. The indicator declined in May by 0.1%, well below the market forecast of a 0.3% gain. Another decline is expected in June, with an estimate of -0.3%. Core retail sales fell by 0.3%, and the markets are braced for a decline of 0.1% in the upcoming release.

* All times are GMT

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3665, which was the high for 2018. 1.3565 is next.

1.3445 has held in resistance since the first week of June. This is followed by 1.3385.

1.3350 has held steady since mid-June.

1.3265 switched to a support role in mid-week as USD/CAD posted strong gains.

1.3175 is the next line of support.

1.3125 (mentioned last week) is next.

1.3048 has held since mid-July.

1.2916 is the final support level for now.

I remain bearish on USD/CAD

The Canadian dollar continues to struggle and more headwinds could be in store for the currency. Wall Street suffered its worst day of the year last week and trade tensions between the U.S-China remain high. With investor risk appetite under pressure, the Canadian dollar will have a tough time holding its own against the U.S. dollar.

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USD/CAD Technical Analysis, Canadian dollar forecast ► preview of the key events that move the Canadian dollar (C$) during the upcoming week. Here are some general data. Scroll down for the latest USD/CAD outlook

USD/CAD Characteristics

The Canadian dollar, aka “the loonie” (the loon appears on the 1 dollar coin) is a commodity currency. Oil is Canada’s primary exports and fluctuations in the “black gold” move CAD as well. The C$ also moves with also with stocks, as it is considered a “risk currency”. However, CAD  also depends heavily on demand from its No. 1 trading partner and southern neighbor, the USA. Trump’s trade wars hurt CAD. NAFTA renegotiations are not going anywhere fast.

Dollar/CAD tends to react relatively slowly to important economic data from Canada. Retail traders thus have a better level playing field that can jump into a trade even without the most sophisticated algorithmic tools. Even the Canadian jobs report tends to result in a relatively long move.

USD/C$ technical trading is OK: not choppy and tough, but neither fully respecting lines of support and resistance. Higher market volatility and trading volume make it more predictable.

Dollar/CAD Recent Moves

The Bank of Canada raised rates in two consecutive meetings, pushing the currency higher. However, this short cycle came to screeching halt alongside a slowdown in the economy and worries about inflation.

From the post-hike lows at the 1.20 handle, the pair began a correction phase and topped 1.29. However, the rise in oil prices due to some shortages and some profit taking stabilized the loonie. Another factor to watch is the housing situation in Toronto, Vancouver, and Montreal, which is worrying.

Canadian rate hikes, US demand and the price of oil will continue guiding USD/CAD.

Latest weekly Canadian dollar forecast

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