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USD/CAD Forecast September 2-6 – Investors eye BoC rate decision

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USD/CAD posted small gains for a second consecutive week. Investors will be keeping a close eye on the Bank of Canada rate decision and employment data. Here is an outlook for the highlights and an updated technical analysis for USD/CAD.
Canada’s GDP remained unchanged at 0.2% in June. This edged above the forecast of 0.1%, but the gain was not enough to boost the lethargic Canadian dollar. The current account trade deficit narrowed to C$-6.4 billion, the smallest deficit since 2008.
Over in the U.S. the highlight of the week was second-estimate GDP for Q2, which came in at 2.0%, matching the estimate. This was a slight downward revision from the initial estimate, which came in at 2.1%. It is evident that second-quarter growth will be significantly weaker than Q1, and further rate cuts could be in the works in the remainder of 2019. Durable goods orders improved to 2.1%, up from 2.0% a month earlier. However, core durable goods orders declined by 0.4%, the first decline in six months. The week wrapped up with UoM consumer confidence, which dropped sharply to 89.8 in July, down from 98.4 in June. This marked the first time that the key confidence indicator has dropped below the 90-level since October 2014.

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

  1. Manufacturing PMI: Tuesday, 13:30. Markit’s purchasing managers’ index for the manufacturing sector improved slightly to 50.2 in July, after three successive contractions. Will we see another expansion in August?
  2. Trade Balance: Wednesday, 12:30. Canada posted a small surplus in June of C$0.1 billion, above the forecast of C$-0.3 billion. Another small surplus is expected in July, with a forecast of C$0.2 billion.
  3. BoC Rate Decision: Wednesday, 14:00. The BoC last raised rates back in October, and no change is expected to the current rate of 1.75%. Investors will be keeping a close eye on the rate statement – a dovish statement could send the Canadian dollar lower.
  4. Employment Data: Friday, 12:30. Employment change declined by 24.2 thousand in July, surprising the markets, which had forecast a gain of 15.2 thousand. Will we see a rebound in the August release? The unemployment rate jumped to 5.7% in July, up from 5.5% a month earlier. We will now receive data for August.

* All times are GMT

USD/CAD Technical Analysis

Technical lines from top to bottom:

1.3665 was the high for 2018. 1.3565 is the next resistance line.

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. It was under some pressure during the week.

1.3265 remained relevant this week. It starts the new trading week as a weak support level.

1.3175 is the next line of support.

1.3125 (mentioned last week) has held in support since the end of August. 1.3048 follows.

1.2916 is the final support level for now.

I remain bullish on USD/CAD

The Canadian dollar continues to lose ground, as the currency has registered seven successive losing weeks. Fears of a recession in the U.S. have dampened risk appetite, and the ongoing U.S-China trade war will not help matters. The Bank of Canada is widely expected to hold rates, and if the rate statement or follow-up comments from BoC Governor Stephen Poloz are dovish, the pair’s upward movement could continue.

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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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