USD/CAD Forecast May 25-29 – GDP Could Send Canadian Dollar South

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The Canadian dollar rebounded last week, posting modest gains. USD/CAD closed the week at the 1.40 level. The upcoming week features inflation and retail sales releases. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
Canada’s numbers were dismal, but the Canadian dollar managed to hold its own against the greenback. Consumer inflation posted a decline for a second consecutive month falling 0.7% in April. Core CPI fell 0.4 percent, the first decline in four months. On the labor front, ADP nonfarm payrolls were in free-fall, with a reading of -226.7 thousand. Retail sales headed south in March. The headline figure plunged 10%, while the core reading dropped by 0.4 percent.
In the U.S., construction numbers softened in April. Building Permits fell to 1.07 million, down from 1.35 million. Housing starts slowed to 0.89 million, down from 0.95 million. In March, the final read for Manufacturing PMI came in at 41.5 points, and the initial estimate for April came in at 39.8 points. A reading below the 50-level points to contraction.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
  1. Current Account: Thursday, 12:30. Canada suffers from a chronic current account deficit, contrary to its occasional surpluses in the narrower monthly trade balance measure. The deficit narrowed to C$8.8 billion in Q4, down from 9.0 billion in the previous release. Will the positive trend continue?
  2. GDP: Friday, 12:30. Canada is unique in that it publishes Gross Domestic Product figures on a monthly, rather than quarterly basis. The economy was stagnant in February, falling from 0.1% to 0.0%. We now await the March data.
  3. Raw Materials Price Index: Friday, 12:30. Prices of materials feed into consumer prices, which makes this index an important gauge of consumer inflation. RMPI crashed in March, falling 15.6 percent, as the Covid-19 pandemic has paralyzed the economy and sent inflation sharply lower. Will we see another sharp decline in April?

USD/CAD Technical Analysis

Technical lines from top to bottom:

1.4480 was an important cushion in April 2000. 1.4310 is the next resistance line.

1.4159 (mentioned last week) has some breathing room after USD/CAD recorded losses last week.

1.4019 is a weak resistance level.

1.39 remains relevant and was tested in support during the week.

1.3757 has held in support since mid-March.

1.3661 is the final support line for now.

I remain bullish on USD/CAD

The outlook for the Canadian dollar remains negative in the near term. Inflation and employment numbers were soft last week, and a decline in the March GDP could weigh on the Canadian dollar.

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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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