Fundamental Overview
The USD has been stronger across the board since the hawkish turn from Fed Chair Powell at the last FOMC press conference. The repricing in interest rate expectations acted as a tailwind for the greenback as Treasury yields continued to push higher.
On Wednesday, we got a couple of strong US data. The US ADP beat forecasts (although that was expected) and the ISM Services PMI came in much better than expected with the price index pushing into a new cycle high.
Despite the strong data, the greenback failed to extend the rally. This is generally a signal of a short-term top with the market needing more to keep the trend going. In fact, the market pricing is now showing a 65% probability of a December cut, which is about right. The data in December will probably have the final say and hopefully we will get an NFP and CPI report before the next FOMC decision.
On the CAD side, the BoC cut interest rates by 25 bps last week as expected bringing the policy rate to the lower bound of their neutral rate estimate of 2.25%-3.25%. The central bank has also signalled that they reached the end of their cutting cycle, although they kept the door open for another cut if needed.
In fact, the statement said: "if inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. If the outlook changes, we are prepared to respond. Governing Council will be assessing incoming data carefully relative to the Bank’s forecast."
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD is consolidating above the recent high around the 1.4080 level. The buyers will likely continue to pile in around these levels with a defined risk below the 1.4080 level to keep targeting the 1.4295 level next. The sellers, on the other hand, will want to see the price falling below the 1.4080 level to position for a pullback into the trendline around the 1.3950 level.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the consolidation above the 1.4080 level. There’s not much we can add here as the buyers will likely step in around the 1.4080 level with a defined risk below it to keep pushing into new highs, while the sellers will look for a break lower to position for a correction into the major trendline.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the high at 1.4140 is acting as a new resistance. If we push into it again, the sellers will likely step in there with a defined risk above it to position for the pullback into the major trendline. The buyers, on the other hand, will look for a break higher to increase the bullish bets into new highs. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the Canadian employment report and the US University of Michigan Consumer Sentiment report.
