#USDCAD Analysis: Bearish Move Lower as Speculative Wagers Increase (15 May 2024)

The USD/CAD has continued to move lower since last week when the currency pair was traversing near the 1.37625 ratio on the 8th of May.

• As of this morning’s trading the USD/CAD is showing that financial institutions are leaning into their weaker USD centric positions.
• The gradual downturn in the USD/CAD the past week has now put the currency pair near interesting mid-term support levels.
• The USD/CAD is near the 1.36340 ratio as of this writing, the currency pair challenged these lows on Friday of last week and yesterday too.

Although the U.S printed a stronger than expected Producer Price Index yesterday, financial institutions continue to show a desire to maintain their bearish positions in the USD/CAD. Support levels should be watched carefully; on the 3rd of May the currency pair did approach 1.36050 before producing a buying surge.

USD/CAD and Today’s U.S Consumer Sentiment Report Data

While the USD/CAD is technically intriguing because it is bouncing up against rather strong support levels in the short-term, today’s CPI numbers from the U.S will deliver a definite impetus into Forex and volatility should be expected. The stronger than expected inflation numbers yesterday in the U.S did not dampen the enthusiasm of bearish traders who seem to be once again taking on the perspective the U.S Federal Reserve will need to cut its interest rate at some point.

However, if the Consumer Price Index numbers come in with a stronger than anticipated outcome today in the U.S, this could provide an additional shockwave into Forex. Perspective will certainly get tested later today depending on the readings from the U.S inflation reports. Traders with open positions in the USD/CAD before the CPI release should be extraordinarily careful regarding their risk taking tactics.

Reactions and Speculation to Come in the USD/CAD

If the U.S produces weaker than expected inflation numbers today this would seemingly help traders with a weaker USD centric perspective. Yesterday’s PPI data caused a short-term wicked storm in the USD/CAD and broad Forex market, but within about half an hours volatility subsided and the USD returned to its weaker stances against many major currencies. However, if the CPI statistics today are stronger than expected (on top of yesterday’s outcome) this could rattle the confidence of financial institutions which may need to reconsider their mid-term outlooks regarding the Federal Reserve.

• Traders need to be ready for volatility today and the use of stop loss and take profit orders are urged for speculators without deep pockets.
• Traders should anticipate the price range of the USD/CAD to widen before and after the release of the U.S CPI data.
• The 1.36000 ratio is certainly within the sights and goals of bearish USD/CAD traders, but they will likely need weaker U.S inflation numbers to attain this lower level in a sustained manner.

Canadian Dollar Short Term Outlook:

Current Resistance: 1.36455

Current Support: 1.36310

High Target: 1.36920

Low Target: 1.35970

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MARKET UPDATE: Bank of Canada Maintains Bank Rate at 5% (7 Dec 2023)

The Bank of Canada (BoC) held rates for a third straight time on Wednesday. This maintains the cost of borrowing at 5%, the highest level in 22 years. The Canadian dollar moved higher following the decision but was unable to consolidate the gains and ended the Wednesday session unchanged.

The decision to pause was widely expected, given that Canada’s economy is stalled, and inflation has been falling. The BoC, while acknowledging that the economy is weak, nevertheless retained its hawkish bias in its rate statement.

BoC Rate Statement

Inflation Risk Remains and Rates Could Go Higher

The BoC Rate Statement said that the “Governing Council is still concerned about the risks to the outlook for inflation and remains prepared to raise the policy rate further if needed.” This was a clear and direct warning that the BoC remains concerned about high inflation and that rate hikes remain on the table.

Despite the BoC’s hawkish message to the markets, it appears unlikely that the central bank will resume its rate hikes, barring the unlikely scenario that inflation reverses directions and moves upwards.

If the BoC signalled that it planned to cut rates and was forced to backtrack and hike due to higher inflation, it would lose credibility. Also, the BoC does not want to encourage market speculation about rate cuts, since it would ease financial conditions, which could fuel higher inflation.

The markets remain convinced that the BoC’s current rate-tightening campaign is over and that we could see rate hikes in mid-2024. That means we can expect the BoC to maintain a “higher for longer” rate policy into next year, with the BoC holding rates in restrictive territory until economic conditions, notably lower inflation, warrant rate cuts.

Canadian Stock Markets and Canadian Dollar Rises but Cannot Consolidate

The Canadian benchmark stock market index, the S&P/TSX, rose marginally after the Bank of Canada rate announcement, rising as much as 112 points (0.55%) to 20,487.95. The index then lost reversed direction and closed on Wednesday down 101.72 points (0.50%) at 20,274.21.

The US Dollar against the Canadian Dollar traded on Wednesday at 1.3592 ahead of the BoC meeting and dropped to a low of 1.3548 following the meeting. The Canadian dollar could not hold onto these gains and closed Wednesday at 1.3593, almost unchanged on the day.

On Thursday, the Canadian Dollar is showing little movement and is trading at 1.3587 in the European session. S&P/TSX 60 Futures are down 7.30 points (0.59%) at 1223.80.

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#Bank of #Canada Pauses Interest Rate Rises: #USDCAD (9 March 2023)

The Bank of Canada has become the first major central bank to halt interest rate rises, as it announced that the cost of borrowing will remain at 4.50%.

The Bank of Canada announced no rate hike at its policy meeting yesterday. This move that comes after eight consecutive rate increases which began a year ago, when rates were at a far lower 0.25%.

Bank of Canada Holds Steady

At the last rate meeting on 25 January, the Bank’s Governing Council stated that it expected to “hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases”.

It seems that recent interest rate increases have finally taken their toll on progress in the Canadian economy, as growth came in at a flat 0% for the final quarter of last year.

This was lower than what the Bank had previously projected.

A sizeable slowdown in inventory investment was blamed for the unexpected slowdown, as consumption, government spending and net exports all have been increasing, the Bank said.

An increasingly tight monetary policy throughout last year put the brakes on household spending, while business investment has also fallen.

Yet there has been some positive news as preliminary data compiled from Statistics Canada for January found that GDP had climbed by 0.3%.

It was a far better outcome than what was seen in December, where there had been a 0.1% economic contraction.

Global Growth Falls

Globally, the Bank noted that growth was continuing to slow, but due to falling energy prices, inflation has been coming down yet remains too high.

The United States and Europe can look forward to near-term rises in growth compared to what has been anticipated, but prices are forecast to rise at the same time.

As China’s economy has rebounded in the first quarter of this year, alongside the continuing impact of the Ukraine conflict, there remain considerable risks to the global economy.

Analysts Not Surprised by Rate Hold

It is unlikely that there will be many raised eyebrows amongst analysts over the Bank’s decision to keep interest rates unchanged.

In a study carried out by Bloomberg involving 22 banks, all of them unanimously said that interest rates would stay the same.

However, ING has predicted that there will a change in course, with the Bank of Canada choosing a rate cut in the fourth quarter of this year.

It is a consequence of the Canadian economy having to adjust to more interest rate rises than other economies have had to withstand, after a cumulative 4.25% surge in interest rates over the course of eight Bank meetings.

Canadian Inflation Eases

Annualized inflation has slowed down for the third successive month the Bank said.

In the year up to January 2023, prices dropped to the 5.9% mark, down from 6.3% in December.

This will come as good news for Canadian consumers, as there were lower prices recorded for energy, durable goods, and services, although this was offset by hikes in food and shelter costs.

The Bank is concerned over the increasingly tight labor market, as it has been surprised by the level of employment growth while unemployment is at near historic lows.

Wages have grown from 4% to 5%, potentially adding to the higher inflation problem. Yet with expected weak economic growth for the next couple of quarters, product and labor market pressures are also expected to ease.

Overall, the Bank believes that Canadian inflation will fall to around the 3% mark in the middle of this year.

Core inflation, prices that do not include food and energy, has ticked down to around 5% the Bank revealed.

Alongside the short-term inflation outlook, it will need to come down to meet the government’s 2% target.

Stock Market Climbs, Canadian Dollar Falls

The Canadian benchmark stock market index, the S&P/TSX, has risen by 0.58% and was trading at 20,393 in the aftermath of the rate decision.

Despite the belief that the economy is to grow at a fragile pace in the short term, the markets are happier for now that there is no more continuation of rate hiking.

The Canadian Dollar has weakened since the release, as it has become obvious the Bank is taking a more dovish approach. The USD/CAD currency pair reached a new 4-month high following the Bank’s release.

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Week Ahead: ,#OPEC+,Eurozone #CPI, & US #NFP (30 MAY- 3 JUNE 2022)

With the shortened week in some areas and a plethora of economic data, there is potential for another volatile week ahead.

Last week, the RBNZ took its turn at hiking interest rates by 50bps. This week the Bank of Canada will get its chance to discuss interest rate policy when it meets on Wednesday. Will the BOC hike by 50bps? OPEC+ will meet this week as well and decide whether to raise output more than the expected 432,000 bpd. In addition, there were many comments last week regarding when, and by how much, the ECB will raise interest rates at its July meeting. Markets may get a clearer picture when the Eurozone CPI Flash is released on Wednesday. Also, the US will release Non-Farm Payrolls this week. With Powell mentioning that getting inflation down may come at the expense of a 3.6% Unemployment Rate, this will be an important NFP to watch!

RBNZ

The RBNZ hiked rates last week by 50bps, raising the key OCR rate to 2%, as expected. This was the 5th consecutive meeting the RBNZ has hiked rates. However, the surprise came in the guidance that followed. The central bank members noted that the neutral rate was between 2% and 3%, though they expect rates to rise above the neutral level. They also increased their OCR forecasts to 2.68% in September vs 1.89% previously, 3.88% in June 2023 vs 2.84% previously, and 3.95% in September 2023 vs 3.1% previously. The central bank also noted that it favored larger increases earlier in the tightening cycle to keep inflation from becoming persistent. The hawkish outlook helped the Kiwi rally, with NZD/USD up nearly 2% on the week.

Bank of Canada

The Bank of Canada meets on Wednesday this week to discuss monetary policy. At the previous meeting, the central bank said that interest rates would need to continue to increase as inflation persists above target. The BOC raised its outlook on inflation for the first half of 2022 to 6%, up from 5% previously, and said that it sees inflation remaining well above the 2% inflation target for the year. The April CPI print was 6.8% YoY, the highest since January 1991, while the core inflation rate was 5.7% YoY, the largest on record! Expectations are for the BOC to raise rates by 50bps from 1% to 1.5%. However, given the hawkish inflation outlook from the last meeting, as well as the recent high inflation readings, is it possible that the Bank of Canada may surprise the markets and raise rates by 75bps?

OPEC+

OPEC+ meets this week to discuss whether to raise output by more than the expected 432,000 bpd in July. The price of crude oil was on the rise last week, with WTI trading to a high of 115.17, near 2-month highs. With the reopening of Shanghai after a 2-month lockdown, many are expecting increasing demand. In addition, the EU is trying to finalize its embargo of Russian oil, which is said to hopefully be completed by May 31st. This will increase demand from other areas of the world. However, despite the demand side issues, OPEC+ sources have already said that it will stick to the existing expectations of 432,000 bpd at this week’s meeting.

Earnings

With an unsettling earnings season winding down, there are still a few names to watch for this week. A few names to be on the look out for are as follows:

WB, HPQ, CRM, GME, AVGO

Economic Data

Lots of ECB members on the wires the last few weeks discussing interest rate increases at the July meeting, including ECB President Christine Lagarde. Last week, some members were even discussing the possibility of a 50bps hike at the July meeting! This has helped send EUR/USD bid. This week, the EU will release its CPI Flash estimate for May. Expectations are for the headline CPI to rise to 7.7% YoY vs 7.4% YoY in April. This reading may help to paint a clearer picture of what the ECB may do next. In addition, The US will release Non-farm Payroll data this week. Expectations are for 310,000 new jobs to have been created in May. The Unemployment Rate is expected to remain unchanged at 3.6%. Keep in mind that the Fed Chairman Powell said recently that getting inflation down may come at the expense of a 3.6% Unemployment Rate. Therefore, expect that the Fed will be paying close attention this data! Other important economic data due out this week is as follows:

Monday

• EU: Economic Sentiment (MAY)
• EU: Consumer Inflation Expectations (MAY)
• Germany: CPI Prel (MAY)

Tuesday

• Japan: Retail Sales (APR)
• Japan: Unemployment Rate (APR)
• Japan: Industrial Production Prel (APR)
• New Zealand: ANZ Business Climate (MAY)
• Australia: Building Permits Prel (APR)
• Australia: Company Gross Profits (Q1)
• China: NBS Manufacturing PMI (MAY)
• China: NBS Non-Manufacturing PMI (MAY)
• Japan: Consumer Confidence (MAY)
• Japan: Housing Starts (APR)
• Germany: Unemployment Rate Harmonized (APR)
• Germany: Unemployment Change (MAY)
• UK: Mortgage Lending (APR)
• EU: CPI Flash (MAY)
• Canada: GDP Growth Rate (Q1)
• US: S&P Case-Schiller Home Price (MAR)
• US: Chicago PMI (MAY)
• US: CB Consumer Confidence (MAY)

Wednesday

• Global: Manufacturing PMI (MAY)
• Australia: GDP Growth Rate (Q1)
• China: Caixin Manufacturing PMI (MAY)
• Germany: Retail Sales (APR)
• UK: Nationwide Housing Prices (MAY)
• EU: Unemployment Rate (MAY)
• Canada: BOC Interest Rate Decision
• US: ISM Manufacturing PMI (MAY)
• US: Beige Book

Thursday

• OPEC+ meeting
• Australia: Trade Balance (APR)
• EU: PPI (APR)
• US: ADP Employment Change (MAY)
• Canada: Building Permits (APR)
• US: Unit Labor Costs Final (Q1)
• US: Nonfarm Productivity Final (Q1)
• US: Factory Orders (APR)
• Crude Inventories

Friday

• Global: Services PMI Final (MAY)
• Australia: Home Loans (APR)
• Germany: Trade Balance (APR)
• EU: Retail Sales (APR)
• US: Non-Farm Payrolls (MAY)
• Canada: Ivey PMI s.a. (MAY)
• US: ISM Non-Manufacturing PMI (MAY)

Chart of the Week: Weekly NASDAQ 100 (NDX)

The NASDAQ 100 made a pandemic low of 6671.91 during the week of March 23rd, 2020. NDX then proceeded to rally to an all-time high of 16764.86 during the week of November 22, 2021, a gain of over 147%. However, as it became more and more apparent that inflation wasn’t as transitory as the Fed thought, NDX began to pull back, including losses the last 7 weeks in a row. Rising interest rates are not good for stocks! Last week, the NASDAQ 100 retraced 50% of the March 2020 low to the November 2021 high, at one point trading below 11768.38. However, the index rallied held the support level and closed the week up over 6.5%. Price also formed a bullish engulfing pattern on the weekly timeframe, indicating that NDX may have further to run. First resistance on the weekly timeframe is at 13020.4. Above there, price can run to the weekly highs from March 28th at 15265.42 and then to the all-time highs at 16764.86. First support is at the recent lows of 11492.29, then the 61.8% Fibonacci retracement level from the March 2020 low to the November 2021 high, at 10589.22. Below there, the NASDAQ 100 can fall to horizontal support dating to February 2020 at 9736.57.

Monday is a US bank holiday and Thursday and Friday are bank holidays in the UK. Be careful of illiquid markets during those time zones on those days. In addition, this week will bring the BOC, OPEC+, and a plethora of economic data. With the shortened week in some areas and a plethora of economic data, there is potential for another volatile week ahead.

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