USD/CAD Forecast: Canadian Dollar under pressure but hugging 1.30 is the name of the game

Dollar/CAD is quite active, trading up and down in choppy trading. Yet despite the action and the apparent weakness of the C$, the pair is not going anywhere fast after the Federal Reserve made a hawkish hike. 

The Canadian Dollar had a bad start to the week due to the bad blood between US President Donald Trump and Canadian Prime Minister Justin Trudeau. Both leaders clashed in the G-7 Summit in Quebec. Trudeau rejected the US demand for a sunset clause in NAFTA and did not like the US tariffs on steel and aluminum, to say the least. His words that “Canada will not be pushed around” angered the Trump who insulted Trudeau from Air Force One and instructed the US delegation not to sign the communique.

USD/CAD opened higher, with a Sunday gap, but things settled down since then. The greenback is on the back foot since early June and this limited any gains for the pair. One of the reasons for the limited moves was the risk-on atmosphere emerging from Trump’s summit with North Korean Leader Kim Jong-un. The smiles diminished demand for safe havens such as the yen and the dollar, allowing USD/C$ to slide.

US core inflation came out at 2.2% as expected, yet still an upgrade. More importantly, the Fed made a hawkish hike, signaling a total of 4 hikes in 2018. Fed Chair Powell also announced a press conference after every meeting and said the economy is in a very good shape. While the American currency initially advanced, the optimism somewhat backfired.

In the background, discussions between OPEC and non-OPEC members continue, and there is some will to increase production. This, in turn, weighs on oil prices and the Canadian Dollar.

Canada’s New House Price Index (NHPI) is expected to rise by 0.2% after remaining flat last time. US retail sales carry expectations for an increase of 0.4% after 0.3% beforehand. while Core Retail Sales are projected to advance by 0.5% after 0.3%. The all-important Retail Control Group carries expectations for a rise of 0.4% in May, repeating the level seen in April.

The next moves for the loonie depend more on sentiment than on data, with further reactions to the Federal Reserve’s decision and a further fallout from stalled NAFTA negotiations.

USD/CAD Technical Levels

USD/CAD continues battling the 1.3000 level and has a clearer resistance at 1.3050 which had a role as high support when the pair traded on the even higher ground in March. Looking higher, 1.3125 was the high point this year.

On the downside, 1.2920 was a swing low and a cap when the pair made a move to the upside. Lower, 1.2820 had a similar role. In case the loonie makes a big comeback, 1.2730 is eyed.


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