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USD/CAD Rate Eyes Monthly-Low as Bearish Sequence Unfolds

USD/CAD Rate Eyes Monthly-Low as Bearish Sequence Unfolds

David Song,
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Canadian Dollar Talking Points

USD/CAD remains under pressure even as Canada Retail Sales contracts 0.2% in July, and the exchange rate appears to be on track to test the monthly-low (1.2962) as it extends the series of lower highs & lows from the previous week.

Image of daily change for major currencies

USD/CAD Rate Eyes Monthly-Low as Bearish Sequence Unfolds

Image of daily change for usdjpy

USD/CAD carves a bearish sequence following the unexpected uptick in Canada’s Consumer Price Index (CPI), with the recent developments raising the risk for a larger pullback in the dollar-loonie exchange rate as signs of a robust economy puts pressure on the Bank of Canada (BoC) to further normalize monetary policy.

The recent slowdown in retail sales may do little to alter the monetary policy outlook as last month’s reading was revised to 2.2% from an initial print of 2.0%, and the upward adjustment may keep the BoC on track to adopt a less-accommodative stance as the ‘Governing Council expects that higher interest rates will be warranted to keep inflation near target.’

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However, recent comments from Governor Stephen Poloz & Co. suggest the central bank is in no rush to boost borrowing-costs as ‘household spending is being dampened by higher interest rates and tighter mortgage lending guidelines,’ and the BoC may stick to the sidelines at the next meeting on September 5 as ‘the Bank is monitoring the economy’s adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.’

With that said, fresh rhetoric from Federal Reserve officials may ultimately sway the near-term outlook for USD/CAD as Chairman Jerome Powell is scheduled to speak at the Fed Economic Symposium in Jackson Hole, Wyoming, but recent price action keeps the downside targets on the radar as both price and the Relative Strength Index (RSI) track the bearish formations from late-June. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

USD/CAD Daily Chart

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  • The monthly-low (1.2962) sits on the radar as USD/CAD carves a series of lower highs & lows, with a break/close below the 1.2980 (61.8% retracement) to 1.3030 (50% expansion) region raising the risk for a move back towards 1.2830 (38.2% expansion), which largely lines up with the 200-Day SMA (1.2837).
  • Next downside region of interest comes in around 1.2720 (38.2% retracement) to 1.2770 (38.2% expansion) followed by the 1.2620 (50% retracement) area.
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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.