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Canadian Dollar Slammed by Weak CPI, RSI Threatens Bearish Formation

Canadian Dollar Slammed by Weak CPI, RSI Threatens Bearish Formation

2017-06-23 13:25:00
David Song, Currency Strategist
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Talking Points:

- AUD/USD Decline Stalls Ahead of 200-Day SMA, Snaps Bearish Sequence Ahead of Fed Rhetoric.

- Canadian Dollar Slammed by Weak CPI Report, RSI Threatens Bearish Formation.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7564

0.7583

0.7538

22

45

The near-term weakness in AUD/USD may continue to unravel as the pair snaps the bearish sequence carried over from the previous week, and the pair may consolidate going into the last full-week of June as the economic docket remains fairly light over the coming days.

Keep in mind the aussie-dollar exchange rate has established a narrow range following the Federal Open Market Committee’s (FOMC) June interest rate decision as market participants appear to be unconvinced the central bank will deliver three rate-hikes in 2017, with Fed Fund Futures still showing a 50/50 chance for a move in December. Nevertheless, fresh comments from Fed officials (St. Louis Fed President James Bullard, Cleveland Fed President Loretta Mester and Fed Governor Jerome Powell) may shift interest rate expectations amid the growing discussion to start unloading the balance sheet, and the slew of central bank rhetoric may keep AUD/USD capped especially as the Reserve Bank of Australia (RBA) remains in no rush to lift the official cash rate off of the record-low.

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • The lack of momentum to break below the 0.7530 (38.2% expansion) hurdle may generate range-bound conditions in AUD/USD, with the pair largely capped by the Fibonacci overlap around 0.7650 (38.2% retracement) to 0.7680 (23.6% retracement).
  • The recent developments in the Relative Strength Index (RSI) instills a constructive outlook for AUD/USD as the oscillator turns around ahead of trendline support, and the aussie-dollar may make another attempt to test the 2017-high (0.7749) as long as it holds above the 200-Day SMA (0.7531).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.3300

1.3308

1.3211

67

97

The Canadian dollar struggles to hold its ground as the region’s Consumer Price Index (CPI) unexpectedly slipped to an annualized 1.3% from 1.6% in April, with the core rate of inflation also missing market expectations as the figure held steady at 1.3% per annum for the fifth consecutive month.

Even though the Bank of Canada (BoC) notes ‘the Canadian economy’s adjustment to lower oil prices is largely complete,’ signs of slowing price growth is likely to encourage Governor Stephen Poloz and Co. to preserve the record-low interest rate at next policy meeting on July 12, and the central bank may continue to endorse a wait-and-see approach for monetary policy as ‘the Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued.’

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • Recent price action in USD/CAD keeps the longer-term bias tilted to the topside as it consolidates above channel support, with the pair at risk for a larger advance as it holds above the June-low (1.3165).
  • Will be keeping a close eye on the Relative Strength Index (RSI) as the oscillator comes up against trendline resistance, and the momentum indicator may flash a bullish signal as it appears to be making a more meaningful attempt to break out of the bearish formation from the previous month.
  • The 200-Day SMA (1.3337) remains on the radar, which sits just below the Fibonacci overlap around 1.3360 (23.6% expansion) to 1.3380 (50% retracement) with the next topside hurdle coming in around 1.3440 (38.2% expansion) to 1.3480 (38.2% retracement).

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IG Sentiment
  • Retail trader data shows 39.9% of traders are net-long AUD/USD with the ratio of traders short to long at 1.5 to 1. In fact, traders have remained net-short since June 04 when AUD/USD traded near 0.74345; price has moved 1.8% higher since then. The number of traders net-long is 5.0% lower than yesterday and 10.7% higher from last week, while the number of traders net-short is 1.9% lower than yesterday and 10.6% lower from last week.
  • Retail trader data shows 69.7% of traders are net-long USD/CAD with the ratio of traders long to short at 2.3 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.34474; price has moved 1.2% lower since then. The number of traders net-long is 23.9% higher than yesterday and 15.0% higher from last week, while the number of traders net-short is 11.6% lower than yesterday and 2.0% lower from last week.

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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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