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USD/CAD Forecast April 27-May 1 – Soft GDP Could Weigh on Wobbly Canadian Dollar

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USD/CAD posted modest gains last week, as the pair closed just shy of the 1.41 line. The upcoming week features three events, including GDP. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
Retail sales slipped in February to 0.3%, down from 0.6% a month earlier. Core retail sales edged lower to a flat 0.0%, down from 0.1%. Inflation numbers in March were dismal. CPI rose 0.9% year-over-year, down from 2.2% in February. On a seasonally adjusted monthly basis, CPI declined by 0.9%, its biggest decline since the indicator was created in 1992. Trimmed CPI, which excludes the most volatile items in CPI, slowed to 1.8%, down from 2.0%. It was the first time the indicator has fallen below the 2% threshold since February 2019.
In the U.S., jobless claims dropped to 4.4 million, down from 5.5 million a week earlier. In the past 5 weeks, new jobless claims have totaled a staggering 26 million, as the Covid-19 crisis has shut down much of the U.S. economy. There was more bad news from March durable goods orders, which plunged by 14.4%, its first decline in four months. The core reading declined by 0.2%, after a decline of 0.6%. The UoM Consumer Sentiment slumped to 71.8, down sharply from 89.1 a month earlier. Still, this beat the estimate of 67.8 points.

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

  1. GDP: Thursday, 12:30. Canada releases GDP on a monthly basis. Canada’s economy slowed to 0.1% in January, down from 0.3% a month earlier. The downturn is expected to continue in February, with a forecast of 0.0%.
  2. Raw Materials Price Index: Thursday, 12:30. The indicator has posted back-to-back declines, as inflation levels remain low. In February, the index fell by 4.7%, worse than the estimate of -2.0 percent. This marked the sharpest decline since July. We now await the March data.
  3. Manufacturing PMI: Friday, 13:30. After six successive readings pointing to expansion, the indicator slipped below the 50.0 level in March, falling to 46.1 points. Will we see an improvement in the upcoming release?

USD/CAD Technical Analysis

Technical lines from top to bottom:

1.4480 was an important cushion in April 2000. 1.4310 is next.

1.4159 (mentioned last week) has some breathing room in resistance.

1.4019 has switched to support after USD/CAD gained ground last week.

The round number of 1.39 has some breathing room in support. 1.3757 is next.

1.3660 is the final support level for now.

I remain bullish on USD/CAD

The outlook for the Canadian dollar remains negative, as economic numbers are reflecting the economic fallout due to Covid-19.  Risk appetite for minor currencies like the Canadian dollar remains weak. As well, low oil prices are also weighing on the Canadian 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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