Talking Points:

- USD/CAD to Recoup May Losses on Strong Non-Farm Payrolls (NFP) Report.

- AUD/USD Initiates Bearish Sequence; Eyes May Low Ahead of RBA Meeting.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.3499

1.3516

1.3477

1

39

USD/CAD holds a narrow range going into the end of the week, with the exchange rate pulling back from a weekly high of 1.3523, but the pair may continue to retrace the decline from the previous month as the U.S. Non-Farm Payrolls (NFP) report is expected to show the world’s largest economy adding another 180K jobs in May.

A better-than-expected NFP report may heighten the appeal of the greenback especially as Fed Fund Futures now highlight a greater than 80% probability for a June rate-hike, and the U.S. dollar may regain its footing ahead of the Federal Open Market Committee’s (FOMC) June 14 interest rate decision as the central bank shows a greater willingness to further normalize monetary policy over the coming months. Fed Governor Jerome Powell continued to endorse three rate-hikes for 2017 as officials expect inflation to gradually approach the 2% target over the policy horizon, and went onto say that the central bank may start to unload the balance sheet later this year as the U.S. economy approaches full-employment. However, the fresh forecasts coming out of the Fed may undermine the bullish sentiment surrounding the dollar should Fed officials continue to project a terminal rate close to 3.00%.

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for USD/CAD remains constructive as the pair continues to track the upward trending channel from 2016, and the failed attempt to test the April low (1.3223) may open up the topside targets especially as the Relative Strength Index (RSI) rebounds ahead of oversold territory; may see a bullish RSI trigger emerge over the coming days as the oscillator threatens the bearish formation carried over from the previous month.
  • In turn, a close above 1.3510 (50% expansion) opens up the first area of interest around 1.3560 (50% expansion) to 1.3570 (61.8% expansion) followed by 1.3630 (38.2% retracement) to 1.3670 (78.6% expansion).

Have a question about the currency markets? Join a Trading Q&A webinar and ask it live!

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7380

0.7455

0.7373

50

82

AUD/USD stands at risk of giving back the rebound from the May low (0.7329) as the pair starts to carve a series of lower highs & low, and the Reserve Bank of Australia’s (RBA) June 6 interest rate decision may do little to prop up the local currency as the central bank is widely expected to keep the official cash rate at the record-low of 1.50%.

After Standard and Poor’s reduced the credit rating for 23 Australian financial firms, the RBA announced it will now accept bank-issued securities rated as low as BBB- for its repurchase agreements, and the central bank may have little choice but to preserve the accommodative stance throughout 2017 as ‘the outlook continues to be supported by the low level of interest rates.’ In turn, the RBA may merely attempt to buy more time, and more of the same from Governor Philip Lowe and Co. may trigger a bearish reaction in the Australian dollar as it drags on interest-rate expectations.

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Keep in mind the broader outlook for AUD/USD remains relatively flat as the pair operates within the 2016-range, but the rebound from the December-low (0.7160) may continue to unravel as price & the Relative Strength Index (RSI) largely retain the bearish formations from earlier this year; lack of momentum to break the 50-Day SMA (0.7497) also keeps the near-term bias tilted to the downside as the moving average follows a similar slope to channel resistance.
  • A close below 0.7390 (38.2% retracement) may open up the May low (0.7329), which coincides with the Fibonacci overlap around 0.7330 (50% retracement) to 0.7360 (38.2% expansion), with the next downside region of interest coming in around 0.7290 (50% expansion) to 0.7300 (78.6% retracement).

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas.

DailyFX Calendar

Click Here for the DailyFX Calendar

For LIVE Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.