Trade risks continue to weigh on the Canadian dollar. Tensions between the U.S. and China remain high, with no talks scheduled between the sides. On Friday, President Trump threatened to slap tariffs on all Mexican products, due to the illegal immigration problem. Although Trump said that tariffs would be set at just 5%, stock markets reacted with sharp losses, and new tariffs between the U.S. and Mexico could hurt the Canadian economy and the Canadian dollar.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
- Manufacturing PMI: Monday, 13:30. Canada’s manufacturing sector has been hit hard by the U.S.-China trade war, and this has been reflected in soft scores from the PMI. In April, the PMI slowed to 49.7, its first contraction since February 2016. Another contraction in May could weigh on the Canadian dollar.
- Labor Productivity: Wednesday, 12:30. Labor efficiency declined 0.4% in Q4 of 2018, its weakest showing since Q3 of 2017. Will we see a gain in the first quarter of 2019?
- Trade Balance: Thursday, 12:30. Canada continues to rack up monthly trade deficits, and the April deficit climbed to C$3.2 billion, above the estimate of C$2.4 billion. The May release is next.
- Ivey PMI: Thursday, 14:00. The PMI impressed in April, climbing to 55.9, indicative of solid expansion. The upward trend is expected to continue in May, with an estimate of 56.2.
- Employment Data: Friday, 12:30. The economy created a whopping 106 thousand jobs in April, crushing the estimate of 11.7 thousand. This reading is unlikely to be repeated, but a strong gain would please investors. The unemployment rate dipped to 5.7%, below the estimate of 5.8%.
* All times are GMT
USD/CAD Technical Analysis
Technical lines from top to bottom:
1.3915 was an important resistance line back in February 2016.
1.3757 has held in resistance since May 2017.
1.3660 was the high point for USD/CAD in December.
1.3547 capped USD/CAD in June 2017. 1.3445 (mentioned last week) remained relevant throughout the week. It starts the upcoming week as a weak resistance line.
1.3385 is next. Close by is 1.3350. Lower, 1.3265 was the high point in mid-November. 1.3225 has held in support since early March. 1.3175 was a swing low in late November.
1.3125 is the final support level for now.
I remain bullish on USD/CAD
The Canadian dollar is sensitive to trade risks, and the with the U.S. engaged in a trade war with China and possibly Mexico as well, the currency could face headwinds.
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