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  • Escalating US-Iran tensions, depleting levels of the US crude inventories please WTI buyers.
  • The US Dollar (USD) carries the latest weakness, triggered mainly due to Powell’s Testimony, amid fresh trade tension.
  • Trade/political headlines, the US CPI and Fed Chair’s second Testimony will direct near-term market moves.

While contrasting monetary policy signals from the BOC and the US Federal Reserve Chairman dragged the USD/CAD pair down on Wednesday, rising crude prices, Canada’s main export item, further dragged the Loonie pair southward to 1.3064 during early Thursday.

The Bank of Canada (BOC) was slightly less dovish considering the recent improvement in data as it met wide market expectations by announcing no change in its monetary policy with the policy rate on hold at 1.75%.

On the contrary, the US Federal Reserve Chairman Jerome Powell cited downside risk to inflation and stamped 25 basis points (bps) of a rate cut in the upcoming monetary policy meeting by the US Federal Open Market Committee (FOMC). Also confirming the US central bank’s bearish bias was the minute statement of the latest FOMC meeting wherein some of the policymakers were highly dovish.

Furthermore, depleting levels of the US crude oil stock and rumors that the US is preparing for airstrikes on some of the Iranian targets in Syria strengthened crude prices and in turn offered extra weight to the Canadian Dollar (CAD).

Capping the CAD strength could be the uncertainty surrounding the US-China trade deal that has been in place despite mixed headlines from both the nations’ media.

Traders may now focus on the US Consumer Price Index (CPI) and second-day of the Testimony by the Fed’s Chair in addition to having an eye over Canada’s May month New Housing Price Index.

The headline US CPI is likely to increase to 0.2% from 0.1% on MoM basis but might soften to .6% from 1.8% on a yearly format. The CPI ex-food and energy could also rise to 0.2% from 0.1% on a monthly basis in June with the YoY figures likely being unchanged to 2.0%. Further, Canada’s housing market gauge is bearing the consensus of 0.1% rise versus 0.0% earlier.

Even if the first day of Powell’s testimony is considered to be the key catalyst, any fresh monetary policy hints from the US central banker might not refrain from fueling market moves.

Technical Analysis

A sustained break of current month low around 1.3038 becomes necessary for the bears to aim for 1.3000 and mid-September 2018 low near 1.2916. Until then, chances of the pair’s pullback to 1.3145/50 horizontal-area can’t be denied.