Browsing: Canadian Dollar Forecast

USD/CAD showed some volatility last week, with swings in both directions. The Canadian dollar showed some strength during the week, but faltered at the end of the week. There are no major Canadian releases in the upcoming week, so U.S. data will likely have a magnified impact on the movement of USD/CAD.  Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
Canada’s Ivey PMI jumped to 60.0 pts in November, up sharply from the previous reading of 48.2. Analysts had predicted a reading of 49.3 pts. However, things went sour for the Canadian dollar on Friday, after the release of soft job numbers. Employment change declined in November by a whopping 71.2 thousand, compared to an estimate of +10.0 thousand. This marked the sharpest decline since January 2018. There was more bad news as the unemployment rate jumped to 5.9%, up sharply from 5.5% in the previous release.
In the U.S., there were no surprises from PMI reports, which showed expansion in the services sector, while the manufacturing industry continues to contract. In November, the ISM Manufacturing PMI ticked lower to 48.1, while the Non-Manufacturing PMI slowed to 53.9 pts. There was better news on Friday from key employment reports. Nonfarm payrolls soared to 266 thousand, up from 128 thousand a month earlier. Wage growth remained steady at 0.2%, just shy of the forecast of 0.3%. As well, the unemployment rate dropped from 3.6% to 3.5%. This beat the forecast of 3.6%. On the consumer front, UoM Consumer Sentiment climbed to 99.2, up sharply from 95.7 a month earlier.

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

  1. Housing Starts: Monday, 13:15.  Housing starts slipped to 202 thousand in October, down from 222 thousand. Little change is projected for the November reading, with an estimate of 200 thousand.
  2. Building Permits: Monday, 13:30. This construction indicator tends to show sharp swings, so forecasts often miss their mark. The indicator declined by 6.5% in September, worse than the estimate of -1.9%. Analysts are expecting a rebound in October, with a forecast of +3.5%.
  3. NHPI: Thursday, 13:30. The New Housing Price Index is a leading indicator of the health of the housing sector. After failing to record a gain for over a year, the index has posted two straight gains. The index gained 2.0% in September and an identical figure is projected for the October release.

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3660. This is followed by 1.3550.

1.3445 has remained intact since the first week of June. 1.3385 is next.

The round number of 1.3300 remains relevant. It has switched to a support role after losses by USD/CAD this week.

1.3265 is an immediate resistance line that could see further action this week.

1.3150 is next.

1.3100 has held in support since the end of October, when USD/CAD started an extensive rally.

1.3048 is protecting the round number of 1.3000, which has psychological significance.

1.2916 was last tested in October 2018. It is the final support for now.

I am neutral on USD/CAD

The up-and-down trade talks between the U.S. and China have left investors confused, as it remains unclear if the sides are near an interim agreement. Elsewhere, OPEC members have agreed to cut oil production, and higher oil prices could boost the Canadian dollar.

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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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