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USD/CAD Preserves Key Support Zone as BoC Warns of Weak Inflation

USD/CAD Preserves Key Support Zone as BoC Warns of Weak Inflation

2017-01-18 16:06:00
David Song, Strategist
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Talking Points:

- AUD/USD Clears December High (0.7525) Ahead of Australia Employment, China GDP.

- USD/CAD Preserves Key Support Zone as BoC Warns of Weak Inflation.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7566

0.7567

0.7540

1

27

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • AUD/USD looks poised for a larger recovery as it clears the December high (0.7525) and trades back above the former-support zone around 0.7530 (38.2% expansion); will keep a close eye on the Relative Strength Index (RSI) as the oscillator appears to be breaking out of the bearish formation carried over from the previous year and approaches overbought territory, with a move above 70 raising the risk for a further advance in the exchange rate.
  • Australia Employment is projected to increase another 10.0K in December while China, the region’s largest trading partner, is expected to expand an annualized 6.7% in the fourth quarter of 2016, and a series of positive developments may spark a bullish reaction in the higher-yielding currency as it dampens speculation for additional monetary support; may see the 4Q Consumer Price Index (CPI) set the tone for the Reserve Bank of Australia’s (RBA) February 7 policy meeting as Governor Philip Lowe and Co. warn ‘globally, the outlook for inflation is more balanced than it has been for some time.
  • Near-term bias remains tilted to the upside as AUD/USD continues to take out the topside targets, with the next region of interest coming in around 0.7590 (100% expansion) to 0.7600 (23.6% retracement) followed by 0.7650 (38.2% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.3094

1.3120

1.3040

52

80

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • USD/CAD may stage a larger recovery as the pair fails to test the October low (1.3006) and comes up against channel support, with the RSI highlighting a similar dynamic as the oscillator appears to be responding to trendline support; may see the range from late-2016 come back into play as the pair largely preserves the bullish structures carried over from the previous year.
  • Following the Bank of Canada’s (BoC) first policy meeting for 2017, it seems as though the central bank will keep the benchmark interest rate at 0.50% for the foreseeable future as officials warn ‘inflation in Canada has been lower than anticipated since October,’ and Governor Stephen Poloz and Co. appear to be in no rush to remove the highly accommodative stance as the ‘Governing Council will continue to assess the impact of ongoing developments, mindful of the significant uncertainties weighing on the outlook;’ the deviating paths for monetary policy continues to foster a long-term bullish outlook for USD/CAD as Fed Fund Futures continue to price a greater than 60% probability for a June rate-hike.
  • Keeping a close eye on the weekly range as near-term price action remains capped by the 10-Day SMA (1.2893), with a closing price above 1.3160 (61.8% retracement) raising the risk for a move back towards the top of the December high (1.3599).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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