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USD/CAD Rate Forecast: BoC Stirs Expectations But Trend Looks Firm

USD/CAD Rate Forecast: BoC Stirs Expectations But Trend Looks Firm

Tyler Yell, CMT, Currency Strategist

Canadian Dollar Rate Forecast Key Takeaways:

  • The ONE Thing: Technical picture shows a breakout to the upside may be in the works. The Canadian Dollar has been an underperformer when compared to the Australian Dollar and the recent drop for CAD to two-week lows may show there is more pain for CAD bulls and more upside for USD/CAD in the near-term.
  • A jump in odds of a Bank of Canada rate hike has helped stall the falling loonie, which has been additionally supported by rising oil. The market implied odds for the BoC now sits at 75%, up aggressively from the levels on Wednesday after a speech from BoC chief, Poloz.
  • Crude oil continues to climb, which is helping to buttress the CAD against the strong US Dollar where other currencies are falling. Oil traded to the highest level on Thursday since 2014 after touching $75.03. Access our recent technical forecast on oil here.

Key Technical Levels for Canadian Dollar Rate to US Dollar:

  • Resistance: C$1.3386 June 27 high (lowest level for CAD to USD in 12-months,) 76.4% of 2017 range
  • Spot: C$1.32625
  • Support: C$1.3160 June 18 low

Local Data Has Been Bad, but BoC Presses On With Hike Guidance

Economic data has aggressively disappointed consensus for much of 2018. The Citi Economic Surprise Index for Canada has consistently fallen through Q2, and in so doing has hit the lowest levels (meaning aggressive disappointments to economist’s expectations) since May 2013.

Despite the weakening data, not all is bad. Oil is on the rise as it recently touched the highest levels since 2014. The rise in oil has helped, but it has not been enough to prevent Canadian 2 year yields trade at their sharpest discount to the US equivalent.

BoC chief Stephen Poloz stated that the central bank retains expectations for higher borrowing costs in the economy, which caused the implied probability of an interest rate hike in July per the Overnight Index Swaps market at ~75%. Before Poloz’s speech, the market was pricing in a ~55% chance.

US-CA 2-Year Yield Spread Helps Push CAD To Lowest Levels In 12-Months

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Data source: Bloomberg

USD/CAD Daily Chart: Canadian Dollar Breaks Down After Consolidation

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Chart Source: IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

The chart above shows the continuation of US Dollar strength against the Canadian Dollar in impressive fashion. Yet, the Canadian Dollar is the best performing G10 currency against the US Dollar in Q2 having only fallen by 2.6% QTD.

Short-term traders should keep an eye on 1.3250, which is a short-term double-top neckline for USD/CAD. A close below would open up a move toward 1.3140, which roughly aligns with the high in May and potential polarity point on the chart.

Above 1.3100, the market looks rip to test C$1.3423, which is the 78.6% retracement of the 2017 range.

More For Your Trading:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

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