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USD/CAD Rebound Stalls, Bearish Series Unfolds Ahead of BoC Rhetoric

USD/CAD Rebound Stalls, Bearish Series Unfolds Ahead of BoC Rhetoric

David Song, Strategist

FX TALKING POINTS:

  • USD/CAD Rebound Stalls, Bearish Sequence Take Shape Following Lackluster U.S. Data. Bank of Canada (BoC) Rhetoric on Tap.
  • NZD/USD Remains Under Pressure Ahead of New Zealand Employment Report. Relative Strength Index (RSI) Continues to Flirt with Oversold Territory.
Image of daily change for foreign exchange

The Canadian dollar outperforms its major counterparts, with the USD/CAD rate at risk for a larger pullback, while the New Zealand dollar stands at risk of facing near-term headwinds as the region’s employment report is expected to show a slowdown in both job and wage growth.

USD/CAD REBOUND STALLS, BEARISH SEQUENCE TAKE SHAPE FOLLOWING LACKLUSTER U.S. DATA.

Image of USDCAD Daily Change

The recent rebound in USD/CAD appears to have stalled ahead of the April-high (1.2944), with the exchange rate at risk of giving back the advance from earlier this month as a bearish sequence takes shape.

USD/CAD struggles to hold its ground as the marginal pickup in the U.S. core Personal Consumption Expenditure (PCE) paired with the slowdown in Pending Home Sales does little to boost bets for four rate-hikes in 2018, and the Federal Open Market Committee (FOMC) may revert back to a wait-and-see approach at the May meeting in an effort to combat the ongoing slack in the real economy.

Keep in mind, Bank of Canada (BoC) Governor Stephen Poloz is scheduled to speak tomorrow at the Yellowknife Chamber of Commerce, with the central bank head likely to tame speculation for an imminent rate-hike as ‘some monetary policy accommodation will still be needed to keep inflation on target.

However, Governor Poloz may ultimately utilize this event to prepare Canadian households and businesses for higher borrowing-costs as ‘inflation in 2018 to be modestly higher than the Bank expected in its January Monetary Policy Report (MPR),’ and an unexpected batch of hawkish rhetoric may fuel further losses in USD/CAD as spurs speculation for another rate BoC rate-hike in 2018.

USD/CAD DAILY CHART

Image of USDCAD Daily Chart
  • Failure to test the April-high (1.2944) raises the risk for a larger pullback in the USD/CAD rate as the pair starts to carve a new series of lower highs & lows.
  • Another close below 1.2830 (38.2% retracement) opens up the 1.2720 (38.2% retracement) to 1.2770 (38.2% expansion) region, with the next area of interest coming in around 1.2620 (50% retracement).

For more in-depth analysis, check out the Q2 Forecast for the U.S. Dollar

NZD/USD REMAINS UNDER PRESSURE AHEAD OF NEW ZEALAND EMPLOYMENT REPORT.

Image of NZDUSD daily performance

NZD/USD remains under pressure going into the end of the month, and updates to New Zealand’s Employment report may generate fresh yearly lows in the exchange rate should the data prints encourage the Reserve Bank of New Zealand (RBNZ) to retain the record-low cash rate throughout 2018.

The New Zealand dollar stands at risk of facing near-term headwinds as job growth is anticipated to slow to an annualized 3.3% from 3.7% in the fourth quarter of 2017, while the gauge for Average Hourly Earnings is expected to narrow to 0.5% from 0.8% during the same period. Developments that underscore weaker growth and inflation is likely to keep the RBNZ on hold at Governor Arian Orr’s first meeting on May 10, and the central bank may continue to tame expectations for a 2018 rate-hike as ‘CPI inflation is expected to weaken further in the near term due to softness in food and energy prices and adjustments to government charge.’

As a result, the advance from the November-low (0.6780) may continue to unravel, with the downside targets still on the radar for the NZD/USD rate as the Relative Strength Index (RSI) hovers around 30.

NZD/USD DAILY CHART

Image of NZDUSD Daily Chart
  • Kiwi-dollar may carve a fresh string of lower highs & lows as RSI continues to flirt with oversold territory, with a move below 30 raising the risk for a further decline in the exchange rate as the bearish momentum gathers pace.
  • Need a close below the Fibonacci overlap around 0.7040 (50% retracement) to 0.7110 (38.2% expansion) to open up the next downside region of interest around 0.6940 (61.8% expansion) to 0.6990 (50% expansion).

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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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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