USD/CAD had an uneventful week until Friday, when a soft GDP release out of Canada sent the pair sharply higher. Traders should keep an eye on the Bank of Canada rate announcement and employment data. As well, the annual budget could impact on the pair’s movement. Here is an outlook for the highlights of this week and an updated technical analysis for USD/CAD.
Canadian inflation fell to a 15-month low in January, with a 1.4% gain on an annualized basis. Gas prices have fallen for six successive months, dragging on inflation. Canada’s GDP in December declined 0.1%, missing the estimate of 0.0%. This marked a second straight decline and the third in three months. The weak economic data means that the BoC policymakers are unlikely to raise interest rates in the next few months.
Over in the U.S., Advance GDP, which was released a month late due to the government slowdown, showed a gain of 2.6% in Q4. Although this was weaker than the 3.4% gain in Q3, it was well above the estimate of 2.2%. The better than expected reading can be credited to strong consumer spending and business investment. The U.S. economy continues to perform well, with a strong expansion of 3.1% in 2018. Even with the strong GDP release, however, it’s unlikely that the Federal Reserve will veer from its dovish stance.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
- Ivey PMI:I Tuesday, 15:00. Ivey PMI fell to 54.7 in January, down from 59.7 a month earlier.
- Annual Budget Release: Tuesday, Tentative. The Canadian Department of Finance publishes its annual budget, which includes forecasts for growth and inflation. Higher expectations could boost the loonie.
- Trade Balance: Wednesday, 13:30. Canada continues to record monthly trade deficits. In November, the deficit ballooned to C$2.1 billion, marking a 6-month high.
- BoC Rate Decision: Wednesday, 15:00. The BoC raised interest rates three times last year, but stayed on the sidelines in January and is likely to hold rates at 1.75% at the March meeting. Policymakers are unlikely to consider a rate hike until the economy produces stronger numbers.
- Building Permits: Thursday, 13:30. The indicator tends to show sharp swings, making accurate forecasts a tricky task. In December, building permits jumped 6.0%, crushing the estimate of -0.9%.
- Housing Starts: Friday, 13:15. Housing starts continue to slow down, falling to 208 thousand in January. Will the negative trend change in February?
- Employment Data: Friday, 13:30. The economy created 66.8 thousand jobs in January, much higher than the estimate of 6.5 thousand. Will we see another strong release in February? The unemployment rate climbed to 5.8% in January,
- Capacity Utilization Rate: Friday, 13:30. This measure of the industry provides the BOC insights on the level of slack in the economy. Utilization has been fluctuating in the mid-80s in recent quarters. After a drop to 82.6% in Q3,
*All times are GMT
USD/CAD Technical Analysis
USD/CAD broke above 1.3265 (mentioned last week) on Friday, when the pair climbed sharply.
Technical lines from top to bottom:
1.3660 was the high point for USD/CAD in December.
1.3560 capped USD/CAD in May 2017. Next, 1.3445 was the peak in early December.
1.3385 was the high point seen in May. 1.3350 was a stepping stone on the way and on the way down around the same time.
Lower, 1.3265 was the high point in mid-November. 1.3225 was tested in support in the middle of the week.
1.3175 was a swing low in late November. It is followed by 1.3125 which was also a low point, earlier in the month.
1.3048 has provided support since early November.
1.2970 is just below the round level of 1.3000. This line was a trough in late October.
1.2915 has held in support since mid-October. It is the final support level for now.
I am neutral on USD/CAD
Canadian economic data has been mixed. Employment numbers have been strong, but a decline in GDP points to weak economic activity. Risk appetite remains strong, as President Trump waived a March 1 deadline, when further tariffs against China were supposed to go into effect. The markets remain optimistic that the U.S. and China will reach a trade deal, and if further progress is made, the Canadian dollar could get a strong boost.
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