USD/CAD Forecast October 7-11 – Loonie Weakens on soft Canadian and U.S. Data

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USD/CAD posted considerable gains last week and touched a 4-week high, as the Canadian dollar continues to struggle. The key event in the upcoming week is employment change. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
In Canada, the Raw Materials Price Index came in at -1.8% in August, its third decline in four months. GDP was flat (0.0%) in July, marking a 5-month low. There was some good news, as the trade deficit came in at C$1.0 billion, slightly lower than expected.
U.S. numbers were soft throughout the week. The ISM Manufacturing PMI for September pointed to contraction for a second straight month. The Services PMI pointed to expansion, but slipped to 52.6, its lowest reading since August 2016. Employment data also disappointed. Nonfarm payrolls came in at 136 thousand, shy of the forecast of 145 thousand. Wage growth fell to 0.0%, down from 0.4% a month earlier. However, the unemployment rate fell to 3.5%, below the estimate of 3.7%.

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

  1. Housing Starts: Tuesday, 12:15. Housing Starts improved to 227 thousand in August, up from 222 thousand a month earlier. The indicator is projected to drop to 217 thousand in September.
  2. Building Permits: Tuesday, 12:30. Building Permits tend to show sharp volatility from month-to-month. After two straight declines, the indicator rebounded in August with a gain of 3.0%, above the estimate of 2.1%. Another gain is expected in September, with an estimate of 2.3%.
  3. NHPI: Thursday, 13:30. The New Housing Price Index has posted three successive declines of 0.1%, which indicates weakness in the housing sector. The forecast for August stands at a flat 0.0%.
  4. Employment Data: Friday, 12:30. The economy created 81.1 thousand jobs in August, a spectacular rebound after two successive declines. This type of gain is unlikely to be repeated. The unemployment rate for August remained steady at 5.7%, matching the forecast.

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3630, which has held since January. 1.3565 is next.

1.3445 has remained intact as resistance since the first week of June. This is followed by 1.3385.

1.3350 was under pressure late last week. It could be tested early in the upcoming week.

1.3265 has switched to a support role after gains by USD/CAD last week. 1.3175 is next.

1.3125 (mentioned last week) has provided support since the end of July.

1.3048 is protecting the round number of 1.3000, which has psychological significance.

1.2916 has held firm since October. It is the final line for now.

I am bearish on USD/CAD

With U.S. services and manufacturing PMIs slowing in September, there is worrisome talk of the U.S. heading towards a recession. A slowdown in the U.S. is bad news for the Canadian economy, which is heavily dependent on its southern neighbor. As well, oil prices are under pressure, which could weigh on Canada’s energy sector.

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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.