Browsing: Canadian Dollar Forecast

USD/CAD recorded strong gains for a second successive week, climbing close to 1 percent. There are only two events on the calendar in the week ahead. Here is an outlook for the highlights of this week and an updated technical analysis for USD/CAD.

The Bank of Canada maintained the benchmark rate at 1.75%, where rates have been pegged since October. The rate statement was dovish, which weighed on the Canadian dollar. In the rate statement, policymakers dropped a reference to rates rising over time. Instead, the bank said that the economy will continue to require stimulus and said that there was “increased uncertainty” about future rate hikes. The pessimistic language is a result of the economic slowdown, which has been worse than the bank anticipated. The BoC’s dovish tone has reinforced market expectations that the bank will not raise rates in the near future, and could lower rates if the economy continues to weaken.

Canada and the U.S .both ended the week with key employment numbers, with very different results. Canada added 55.9 thousand, crushing the estimate of 0.6 thousand. In the U.S., nonfarm payrolls plunged to 20 thousand, much worse than the forecast of 180 thousand. Wage growth improved to 0.4%, above the estimate of 0.3%. The Canadian dollar responded with slight gains to end the week.

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

  1. NHPI: Thursday, 00:30. The New Housing Price Index has been pegged at a flat 0.0% for five successive months. Another reading of 0.0% is projected in the January release.
  2. Manufacturing Sales: Friday, 12:30. This key indicator should be treated as a market-mover. The manufacturing sector has been hurt by the global trading war, and manufacturing sales have declined in four of the past five releases. Another weak release could send the Canadian dollar lower.

*All times are GMT

USD/CAD Technical Analysis

USD/CAD continued to test resistance at 1.3445 (mentioned last week).

Technical lines from top to bottom:

With USD/CAD posting strong gains last week, we start at higher levels:

1.3757 has held in resistance since May 2017.

1.3660 was the high point for USD/CAD in December.

1.3547 capped USD/CAD in June 2017. Next, 1.3445 was the peak in early December.

1.3385 was the high point seen in May. 1.3350 was a stepping stone on the way and on the way down around the same time.

Lower, 1.3265 was the high point in mid-November. 1.3225 was tested in support in the middle of the week.

1.3175 was a swing low in late November.

1.3125 was a low point earlier that month.

1.3048 has provided support since early November.

I am bullish on USD/CAD

The slowdown in the Canadian economy is deeper than expected, as underscored by two straight declines in GDP. The BoC rate statement was understandably dovish, and investors will not be rushing to invest in an economy with questions marks. At the same time, further progress in the U.S-China trade war would raise risk appetite and likely boost the Canadian currency.

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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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