USD/CAD Forecast June 3-7 – Canadian dollar loses ground as trade tensions persist

USD/CAD posted considerable gains last week, as trade tensions persisted. This week’s highlights are trade balance and employment change. Here is an outlook for events this week and an updated technical analysis for USD/CAD.
There were no surprises from the Bank of Canada, which kept rates pegged at 1.75% for a fifth straight month. The rate statement was positive in tone, which has raised speculation that the bank could raise rates later in the year. Bank members stated that the economic slowdown which gripped the economy in late 2018 and early 2019 was temporary. At the same time, the BoC acknowledged the vulnerability of the economy to global developments, stating that global trade risks were “heightening uncertainty” over the country’s economic outlook. There was good news from GDP, which rebounded with a gain of 0.6% in March, after a decline of 0.1% a month earlier.

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:

  1. 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.
  2. 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?
  3. 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.
  4. 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.
  5. 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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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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