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USD/CAD Forecast July 8-12 – Canadian dollar starts July with a yawn

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After a spectacular month of June, USD/CAD had an uneventful week to kick off July. The markets will be keeping a keen eye on the Bank of Canada, which is expected to hold rates at 1.75%. Here is an outlook for the highlights and an updated technical analysis for USD/CAD.
Canada usually posts a trade deficit, but the country finally broke through with a trade surplus in April. The surplus of C$0.8 billion was the first since August 2018. The week ended with sour employment numbers. Employment change came in at -2.2 thousand in June, the first decline in three months. This was well below the estimate of 10 thousand. 
In the U.S., the ISM Non-Manufacturing PMI disappointed, slowing to 55.1, down from 56.9 a month earlier. This missed the estimate of 56.1. Key employment numbers were a mix in June. Wage growth remained stuck at 0.2% for a third successive month. Nonfarm payrolls rebounded with a strong gain of 224 thousand, well above the estimate of 162 thousand. The unemployment rate ticked up to 3.7%, above the estimate of 3.6%.

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

  1. Housing Starts: Tuesday, 12:15. In May, housing starts slowed to 202 thousand, down from 235 thousand a month earlier. The June forecast stands at 209 thousand.
  2. Building Permits: Tuesday, 12:30. Building permits tend to show strong swings from month-to-month, making accurate forecasts a tricky task. In April, the indicator shot up 14.7%, its strongest gain since February 2016.
  3. BoC Rate Decision: Thursday, 12:30. The BoC has not raised rates since October, and the markets are expecting rate-setters to hold the course at the upcoming meeting. The Bank will release a rate statement along with the monetary policy report. This will be followed by a press conference with BoC Governor Stephen Poloz. If the BoC sounds dovish about economic conditions, the Canadian dollar could lose ground.
  4. NHPI: Friday, 14:30. The New Housing Price Index is a useful gauge of the strength of the housing market. The index has been flat, with readings of zero in nine of the past 10 releases. Will we see any improvement in the upcoming release?

* All times are GMT

USD/CAD Technical Analysis

Technical lines from top to bottom:

1.3445 (mentioned last week) has some breathing room after strong gains by USD/CAD last week.

1.3385 is next. Close by is 1.3350.

1.3265 switched to a resistance role in mid-June.

1.3175 was a swing low in late November.

1.3125 was a low point earlier in November.

1.3048 remained relevant during the week. This line has provided support since late October. 1.2916 is next.

1.2831 is next.

1.2729 is the final support level for now.

I am bullish on USD/CAD

The Canadian dollar enjoyed a spectacular June, gaining over 3.0%. Investors will be keeping a close eye on the BoC, which is expected to hold the course on rates. If policymakers sound dovish about economic conditions, investors could respond by sending the Canadian currency dollar lower. The strong U.S. employment numbers for June could delay a rate cut from the Fed, which is good news for the greenback.

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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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