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USD/CAD Forecast Jan. 20-24 – After Quiet Week, Investors Await Consumer Releases, BoC Decision

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USD/CAD showed limited movement last week as the pair hovered close to the 1.3050 line. The upcoming week is busy, with inflation, retail sales, and the Bank of Canada rate decision. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
Canadian numbers were mixed last week, The ADP nonfarm payrolls report improved to 46.2 thousand, its highest level in four months. However, Foreign Securities Purchases declined by C$1.75 billion in October, well off the estimate of C$12.32 billion. This was the first decline since July.
It was a busy week for U.S. indicators after the recent holiday period. Retail sales, the primary gauge of consumer spending, were positive in December. The headline reading improved to 0.3%, up from 0.2% a month earlier. Core retail sales impressed with a gain of 0.7%, above the estimate of 0.5%. The strong numbers were a result of a late-holiday shopping spree by consumers. Consumer inflation has been losing ground and remains below the Federal Reserve target of 2.0 percent. The downturn continued in December. CPI slowed to 0.2%, compared to 0.3% a month earlier. Core CPI dipped to 0.1%, down from 0.2%.

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

  1. Manufacturing Sales: Monday, 13:30. The manufacturing sector remains weak and manufacturing sales has managed only one gain in the past five readings. In October, the indicator declined by 0.7%, missing the forecast of zero. Will we see a rebound in the November release?
  2. Inflation: Monday, 13:30. Consumer inflation declined by 0.1% in November, its third decline in the past four months. Core CPI, which excludes the most volatile items which make up CPI, fell by 0.2% in November. We will now receive the December data.
  3. Wholesale Sales: Wednesday, 13:30. Sales at the wholesale level provide some guidance for consumer spending, a key growth engine of the economy. The indicator fell by 1.1% in November, after a gain of 1.0% a month earlier. The November reading was well off the estimate of -0.4%.
  4. BoC Rate Decision: Wednesday, 15:00. The Bank of Canada is expected to maintain the benchmark rate at 1.75%, where it has been pegged since October 2018. The tone of the rate statement could have a significant effect on the movement of USD/CAD.
  5. Retail Sales: Friday, 13:30. Retail Sales have sputtered, with three successive declines. In October, the indicator declined by 1.2%. This was well off the estimate of 0.5%, and marked the sharpest decline since April 2018.

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3445, which has remained intact since June 2019. 1.3385 is next.

The round number of 1.3300 has served in a resistance role since early December. 1.3265 follows.

1.3150 switched to a resistance role in the last week of December.

1.3100 (mentioned last week) remains an immediate resistance line,

1.3048 was relevant throughout the week. Currently, it is a weak resistance line.

1.2916 has provided support since October 2018. 1.2830 is next.

1.2730 has held in support since May 2018.

1.2630 is the final support level for now.

I remain neutral on USD/CAD

After the recent flare-up between the U.S. and Iran, the situation has de-escalated and investor risk appetite has recovered. Canadian consumer data and the BoC rate statement could play a major role in the Canadian dollar’s fortunes this week.

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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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