USD/CAD Forecast Oct. 28-Nov. 1 – Canadian dollar keeps gaining, BoC decision ahead

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The Canadian dollar posted gains for a third successive week, as USD/CAD dropped to its lowest level since mid-July. This week’s key events are the Bank of Canada rate decision and GDP. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
Canadian Prime Minister Trudeau was re-elected to a second term, but he will have to work with a minority government, which could mean another election in a year or two. This will create political uncertainty and could weigh on the Canadian dollar. On the economic front, retail sales disappointed in August. The headline reading declined by 0.1%, down from 0.4% a month earlier. Core retail sales declined by 0.2%, its third decline in four months.
In the U.S, manufacturing data continues to point to trouble in the manufacturing sector. Core durable goods orders fell by 0.3%, the second decline in three months. The headline reading declined by 1.1%, its first decline in four months. The manufacturing PMI improved to 51.5, above the estimate of 50.7. Still, this points to minimal expansion.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:

  1. BoC Rate Decision: Wednesday, 14:00. The BoC is expected to maintain rates at 1.75%, where they have pegged since last October. The upcoming rate decision also consists of new forecasts and a press conference by BoC Governor Stephen Poloz and Deputy Carolyn Wilkins. An upbeat message from rate-setters is bullish for the Canadian dollar.
  2. GDP: Thursday, 12:30. Canada’s GDP reports are released monthly and should be treated as a market-mover. The economy was stagnant in July, with a GDP of 0.0%. Investors are expecting better news in August, with a forecast of 0.2%.
  3. RMPI: Tuesday, 14:30. Inflation remains subdued, and this inflation indicator has struggled, with three declines in the past four months. The August release came in at -1.8%, Will we see a rebound in September?
  4. Manufacturing PMI: Friday, 13:30. Markit’s purchasing managers’ index for the manufacturing sector improved in September to 51.0, which indicates stagnation. Still, this was the index’s strongest reading since February.

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3445. This line has remained intact since the first week of June.

1.3350 has held since early September. 1.3265 is next.

1.3175 has some breathing room following further losses by USD/CAD this week.

1.3125 (mentioned last week) has switched to a resistance role. It had provided support since the end of July.

1.3048 is an immediate support line. It is protecting the round number of 1.3000, which has psychological significance.

1.2916 has held firm since October.

1.2830 is next.

1.2730 is the final support line for now.

I am neutral on USD/CAD

The Canadian dollar has posted strong gains in recent weeks, but this trend is more a case of weakness of the U.S. dollar rather than strong Canadian numbers. If risk appetite weakens due to geopolitical instability, the Canadian dollar could weaken.

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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.