CANADIAN DOLLAR PRICE, CHARTS AND ANALYSIS:
- The Loonie Looks on Course for Further Gains Against the Greenback as the DXY Slide Continues.
- BoC Governor Macklem Revealed Concerns Around the Pace at Which Inflation is Expected to Fall Moving Forward.
- Technicals Are Hinting at Further Downside However, a Short-term Retracement Remains a Possibility.
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Read More: The Bank of Canada: A Trader’s Guide
CANADIAN DOLLAR BACKDROP
It has been an interesting couple of weeks for the Canadian Dollar heading into yesterday’s Bank of Canada meeting. The Central Bank opted for a 25bps hike while warning that the downward pressure on inflation may start to slow. This was followed by a warning that more hikes may come should the recent progress on inflation show significant signs of a slowdown.
READ MORE: Bank of Canada Hikes by 25 bp, Warns Inflation Downward Momentum Will Slow
Further comments from Governor Macklem yesterday revealed that the BoC expect CPI to hover around the 3% for the next 12 months with the recent slowdown largely attributed to lower energy prices. In regard to the labor force Governor Macklem said that rising immigration numbers are having a knock-on effect on inflation as consumer demand rises. Following the rate decision and comments by Governor Macklem money market are still pricing in a peak rate above 5% for December 2023.
Given the pivot we are seeing from market participants regarding the Federal Reserve and the potential for a pause after this month’s meeting as well as the weakness in the dollar which could be a longer-term trend, USDCAD could be poised for further downside in Q3.
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ECONOMIC CALENDAR AND EVENT RISK AHEAD
There is not a lot left this week in terms of high impact risk events on the calendar with tomorrow bringing the preliminary Michigan Consumer Sentiment numbers. Earnings season kicks off in the US tomorrow as well and this could stoke volatility across markets in the coming days as it may provide another indication as to the overall health of the US and Global economy.
All the attention from the Canadian Dollar perspective is likely to come next week with inflation data for the month of June being release. Given the comments by Governor Macklem any signs of an uptick in inflation could see rate hike bets hawkishly repriced adding a further layer of support for the CAD and likely resulting further downside for USDCAD.
For all market-moving economic releases and events, see the DailyFX Calendar
PRICE ACTION AND POTENTIAL SETUPS
USDCAD has continued to grind lower today as US CPI and a rate hike by the BoC inspired a renewed push to the downside. The 1.3000 mark has remained a key level for USDCAD historically with a retest long overdue as the pair last traded below said level in August 2022.
USD/CAD Daily Chart
Source: TradingView, prepared by Zain Vawda
The pair is approaching overbought territory and there is a chance that rice reach 1.3000 it could be in for a retracement before eventually pushing back down and breaching the 1.3000 handle.
Taking a look at the IG client sentiment data and we can see that retail traders are currently net LONG on USDCAD with 68% of traders holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment meaning we could see USDCAD prices continue to decline following a short upside rally.
Key Levels to Keep an Eye On:
Support levels:
- 1.3000
- 1.2900
- 1.2750 (August 2022 Swing Low)
Resistance levels:
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— Written by Zain Vawda for DailyFX.com
Contact and follow Zain on Twitter: @zvawda