USD/CAD ANLAYSIS & TALKING POINTS
- Chinese PMI’s weighs negatively on loonie.
- BoC rate decision & US ISM services in focus tomorrow.
- Bearish divergence apparent on daily chart gives CAD bulls hope.
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CANADIAN DOLLAR FUNDAMENTAL BACKDROP
The Canadian dollar has been weakening against the USD on Tuesday throughout the European trading session after markets digest concerns around the Chinese economy. Chinese Caixin PMI’s disappointed and with China being Canada’s second largest trade partner, the loonie has since deteriorated. Crude oil prices have added to CAD woes as the Dollar Index (DXY) finds some bids in a risk averse environment.
Today holds no high impact events as USD/CAD prepares for tomorrow’s Bank of Canada’s (BoC) rate decision as well as US ISM services PMI (see economic calendar below). Leading up to the rate announcement, Canada’s inflation has been moderating (both core and headline) as shown in the graphic below which has led money markets to believe that current monetary policy is restrictive enough to quell inflationary pressures.
CANADA CPI VS INTEREST RATES
Source: Refinitiv
USD/CAD ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX Economic Calendar
Market expectations (refer to table below) anticipate the BoC keeping rates in hold with the first round of cuts estimated around the end of 2024.
BANK OF CANADA INTEREST RATE PROBABILITIES
Source: Refinitiv
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TECHNICAL ANALYSIS
USD/CAD DAILY CHART
Chart prepared by Warren Venketas, IG
Daily USD/CAD price action shows a clean bounce off the 1.3668 swing high today. The recent higher highs are in contrast to the lower highs reflected on the Relative Strength Index (RSI) which is representative of bearish/negative divergence. This phenomenon generally suggests impending downside to come but can be ambiguous as to timing. Tomorrow’s key data releases could support this move should the BoC present slightly hawkish while ISM services follow estimated values.
Key resistance levels:
- 1.3700
- 1.3668
Key support levels:
- 1.3600
- 1.3500
IG CLIENT SENTIMENT DATA: BULLISH
IGCS shows retail traders are currently SHORT on USD/CAD , with 76% of traders currently holding short positions (as of this writing). Download the latest sentiment guide (below) to see how daily and weekly positional changes affect USD/CAD sentiment and outlook!
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Contact and followWarrenon Twitter:@WVenketas
