Canadian dollar outlook bullish as USDCAD heads to 1.30 mark

Published on: 08/6/18 2:51 PM

Category: Uncategorised

Recent sentiment since last week continues to suggest a bullish outlook for the Canadian dollar. This should hold true if the USDCAD can stay under the 1.30 level for resistance. A number of factors have contributed to the positive view on CAD, with more events that could contribute coming with next week’s economic calendar. However, traders will continue to exercise some caution should certain headlines appear that would halt the bullish sentiment.

Oil prices have helped lead the way towards one of the quickest growth spurts within a year on the charts. Evidence came via GDP data which was above the economic forecasts. A trade deficit this past Friday (Aug. 3) indicates there could be another rate cut on the way before the year’s end. However, the recent Citi Surprise Index data has shown that Canada has outperformed the United States in recent times. The US data has shown a dip into negative territory on the charts since mid-July, while Canada has moved higher on the charts.

There are still Bank of Canada rate hikes expected and about 17bps of tightening have already been factored into the charts ahead of October’s policy meeting. A rate hike of about 25bps is fully priced into the data for December. Due to these factors, CAD has seen a favorable move when it comes to the two-year yield bond spreads for the US-CA. In fact, that number has moved past the 60pbs level.

The upcoming week’s calendar of events will include several key items. On Tuesday (Aug. 7), data comes from the Ivey Purchasing Managers Index, while Wednesday (Aug. 8) brings data about building permits. Both are considered medium to low in terms of their potential impact on the charts.

Reports on housing and employment will arrive towards the end of the week. Friday’s employment and unemployment numbers will be of particular interest as they can impact the charts in a major way. In particular, the focus will be on the CAD net change in employment and the CAD unemployment rate for July. Traders will also be watching for any news with regards to NAFTA which may have a significant impact on Canada’s economy.

In terms of resistance levels for the USDCAD, 1.30 remains a key psychological level for traders. The 1.3115 area is considered a Fibonacci retracement level, while 1.3180-1.32 is a key resistance area. Traders will see support at the 1.2940-50 and 1.2980 levels.