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USD/CAD Forecast Feb. 8-12 – Steady after soft job numbers in Canada, US

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USD/CAD showed movement in both directions and was almost unchanged over the week. The data calendar for the upcoming week is very light, with only one minor event. Here is an outlook for the highlights and an updated technical analysis for USD/CAD.  

Canada Manufacturing PMI slowed to a 6-month low in January, falling from 57.9  to 54.4. Still, the index remains in expansionary territory, with readings well above the 50-level.
January job numbers were awful. The economy shed some 212.8 thousand jobs, a second straight decline and much weaker than the estimate of -43.5 thousand. The unemployment rate jumped from 8.6% to 9.4%, its highest level in five months. This missed the forecast of 8.9%.
Despite the dismal job data, the Canadian dollar gained ground after the release, as US Nonfarm Payrolls sent the US dollar broadly lower. Ivey PMI improved to 48.4, up from 46.7. The index remained in contraction territory for a second successive month.
In the US, ISM Manufacturing PMI dipped to 58.7, down from 60.7 beforehand. Still, this figure points to strong expansion, as manufacturing remains a bright spot in the US economy. The services sector grew for an eighth straight month in a row, as the ISM Services PMI improved to 58.7, up from 57.2 beforehand. This was the highest reading since February 2019.
U.S. Nonfarm Payrolls disappointed with a negligible gain of 49 thousand, which didn’t even reach the forecast of 85 thousand. Wage growth rose 0.2%, down from 0.8% beforehand. There was better news from the unemployment rate, which dropped from 6.7% to 6.3%, its lowest level since March.

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

  1. Wholesale Sales: Monday, 14:30. This consumer spending indicator slowed to 0.7% in November, down from 1.0%. We now await the December data.

Technical lines from top to bottom:

We start with resistance at 1.3074.

1.2977 is protecting the symbolic 1.30 level.

1.2916 (mentioned last week) was last tested in resistance in mid-December.

1.2782 is next.

1.2684 is the first support level.

1.2587 is next.

1.2489 is the final support level for now.

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I am neutral on USD/CAD

The Canadian dollar escaped a bullet last week, as it managed to hold its own despite dismal job numbers. With the Canadian economy showing strains due to strict Covid lockdowns, the Canadian dollar could face some pressure.

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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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