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USD/CAD Forecast June 8-12 – Canadian Dollar Hits 3-Month High after Superb Job Numbers

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The Canadian dollar climbed 2.5% last week, as USD/CAD fell to its lowest level since early March. There are three releases in the upcoming week, all of minor significance. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
The Bank of Canada maintained interest rates at 0.25% for a third successive month, as expected. Policymakers noted that financial conditions have started to improve, as the country is slowly recovering from the Covid-19 outbreak. This was the first policy meeting under new BOC Governor Tiff Macklem, who replaces Stephen Poloz.
Canada’s trade deficit jumped to C$3.3 billion in April, up from C$ 1.4 billion beforehand. It was the highest deficit recorded since January 2019. The economy added 289.6 thousand jobs in May, after shedding 1.99 million a month earlier. Analysts had predicted a loss of 500 thousand jobs. The unemployment rate climbed to 13.7%, up from 13% beforehand. Still, this was better than the estimate of 15.0 percent. Elsewhere, Ivey PMI improved to 39.1, up from 22.8 and beating the forecast of 30.8 points.
In the U.S., ISM Manufacturing PMI improved to 43.1, up from 41.1 beforehand. The PMI has now pointed to contraction for three straight months, as the manufacturing sector has been hit hard by the economic crisis. The services sector also finds itself in contraction territory, as the ISM Non-Manufacturing PMI came in at 45.4 in May within expectations. Nonfarm payrolls shocked with a huge gain of 2.5 million in May, defying the estimate of -7.7 million. In April, the economy shed a staggering 20.5 million jobs. The unemployment rate fell to 13.3%, down from 14.7% beforehand. The forecast stood at 19.4 percent.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
  1. Housing Starts: Monday, 12:15. Housing starts is an important gauge of the strength of the housing sector. The indicator slipped to 171 thousand in April, its lowest level since January 2016. Will we see a rebound in the May release?
  2. Corporate Profits: Tuesday, 12:30. Canadian corporations enjoyed a strong increase of 3.6% in profits during Q4 of 2019, marking a third consecutive quarterly expansion. We now await the Q1 data.
  3. Capacity Utilization Rate: Friday, 12:30. This quarterly measure of the industry provides the Bank of Canada with insights on the level of slack in the economy. Utilization has been fluctuating slightly above the 80- level in recent releases.

USD/CAD Technical Analysis

Technical lines from top to bottom:

With USD/CAD recording sharp losses, we start at lower levels:

1.3757 switched to resistance early in the week.

1.3661 (mentioned last week) is next.

1.3550 had been in a support role since early March, but switched to resistance after strong gains by USD/CAD last week.

1.3420 is fluid, as USD/CAD ended the week just shy of this level.

1.3330 is providing support.

1.3265 is next.

1.3150 is the final support level for now.

I am neutral on USD/CAD

The outlook for the Canadian economy is not rosy, but the Canadian dollar has showed surprising resilience, with gains of 4.5% since April 1. Last week’s employment numbers were strong on both sides of the border, a sign that both the U.S. and Canada are seeing stronger economic conditions.

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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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