Fundamental Overview
The USD sold off across the board on Friday as Fed Chair Powell tilted more dovish by saying that “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
That saw traders firming up expectations for a rate cut in September which now stands around 85% probability with a total of 54 bps of easing by year-end. Overall, it’s not the repricing in interest rates expectations that weighed on the greenback but hedges being unwound.
Now, the focus turns to the US NFP report next week which is going to be crucial and will influence greatly interest rates expectations. Strong data might take the probability for a September cut towards a 50/50 chance but will certainly see a more hawkish repricing further down the curve. Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in.
On the CAD side, the underlying inflation in Canada has been rising steadily since last December and continues to hover near the upper bound of the 1-3% target range. The data out of Canada has been improving recently. The latest employment report surprised to the upside, while the inflation data came out slightly below expectations, although still around 3%.
The BoC kept interest rates unchanged at the last meeting as expected and although it kept the door open for more rate adjustments, it’s unlikely to do so unless we get another growth shock or a series of benign inflation data. The market is pricing 23 bps of easing by year-end.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD probed above the key swing level at 1.3860 but eventually gave back all the gains following Powell’s dovish tilt. The sellers will likely step in around these levels with a defined risk above the swing level to position for a drop into the 1.36 handle. The buyers, on the other hand, will want to see the price rising back above the swing level to start targeting the 1.40 handle next.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a major upward trendline defining the bullish momentum on this timeframe. The buyers will likely lean on the trendline with a defined risk below it to position for a rally into the 1.40 handle. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 1.36 handle next.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much we can add here as the buyers will look for a bounce around the trendline, while the sellers will look for a break. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the US Consumer Confidence report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the Canadian GDP and the US PCE price index.
