Browsing: Canadian Dollar Forecast

The Canadian dollar strengthened last week, as USD/CAD dropped close to 1 percent. There are four releases in the upcoming week, including inflation and retail sales. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.

Canada only released tier-2 data last week, but the numbers were nonetheless encouraging. Housing Starts climbed to 246 thousand in July, up from 212 thousand beforehand. This marked the highest reading since June 2019. The week wrapped up with Manufacturing Sales, which jumped 20.7% in June, up from 10.7% a month earlier.

In the US, consumer inflation was unchanged at 0.6% in July. The core reading improved to 0.6%, up from 0.2% beforehand. There was good news on the employment front, as unemployment claims fell to 963 thousand, down from 1.186 million. This marked the first time that new claims have fallen below the 1-million mark since mid-March, before the spread of Covid-19. Retail sales reports were mixed. The core reading came in at 1.9%, above the estimate of 1.3%. However, the headline read posted a gain of 1.2%, shy of the estimate of 2.0%.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
  1. Foreign Securities Purchases: Monday, 12:30.  Demand for Canadian securities by foreigners dropped to C$22.41 billion in May, down sharply from C$49.04 billion beforehand. We now await the June data.
  2. Inflation: Wednesday, 12:30. The headline reading climbed to 0.8% in June, up from 0.3% in May. This marked the strongest reading since January 2107. Core consumer inflation improved to 0.4%, after two declines. Will the uptrend continue in the July release?
  3. ADP Non-Farm Employment Change: Thursday, 12:30. The official employment change came in at 418.5 thousand in July, pointing to strong job growth. The ADP indicator is projected to climb over the 1-million mark, with an estimate of 1.04 million. If the release is within expectations, it would be another sign that the economy is headed in the right direction.
  4. Retail Sales: Friday, 12:30. Retail sales rebounded nicely in May, with a gain of 18.7%, after a plunge of 26.4% beforehand. It was a similar story for the core reading, which climbed 10.6% after a drop of 22.0% in the previous release. Strong data for June would be bullish for the Canadian dollar. 
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USD/CAD Technical Analysis

Technical lines from top to bottom:

1.3550 (mentioned last week) has held in resistance since mid-July.

1.3420 is next.

1.3330 switched to a resistance role as USD/CAD posted strong losses last week.

1.3265 is fluid, as the pair ended the week just below this line.

1.3140 is providing support.

1.3078 has provided support since January.

1.2951 is a 52-week low for the pair. It is the final support level for now.

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I am bearish on USD/CAD

The US dollar continues to struggle, and Canada continues to show good numbers, indicating that the economic recovery is gaining steam. If Canada posts solid inflation and retail sales numbers this week, we could see the Canadian dollar’s rally 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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