Canadian Dollar Sees Slight Gains as Oil Price Rises on Supply Fears

• The Canadian dollar is trading slightly higher, supported by the rise in oil prices due to fears about the supply.

• Canadian manufacturing PMI for June comes in below forecasts, although price response is limited.

• Traders are dubious about the Bank of Canada’s monetary policy outlook as GDP continues to grow but inflation falls.

The Canadian dollar rose against the US dollar on Tuesday during the US session on higher prices for oil, Canada’s biggest export, amid fears of supply cuts from Saudi Arabia and Russia.

The Canadian Manufacturing PMI release on Tuesday came in below expectations and continues to show contraction in the sector, but the data had limited impact on the CAD exchange rate.

The USD/CAD pair is trading lower at 1.32 on Tuesday during the US session.

Canadian Dollar News and Market Movements

• The Canadian dollar advances around 0.25% due to the increase in oil prices. While global growth prospects had weighed on oil prices, fears of supply cuts from Saudi Arabia and Russia outweighed them.

• The Bank of Canada raised rates 0.25%, raising its official interest rate to 4.75% at its latest meeting after a five-month hiatus. In its statement, the BOC attributed the main causes to increased consumer spending and higher-than-expected economic growth.

• In May, Canadian GDP grew by 0.4%, following the stagnation of the economy in April, raising expectations of further rate hikes by the BoC.

• Core inflation for May, however, fell to 3.7% below forecast, from 3.9% expected and 4.1% previously, lowering expectations that the BoC will raise interest rates at its July 12 meeting. .

• The BOC’s inflation target is between 1% and 3%, so with core inflation at 3.7%, it is not as far from the upper threshold as before.

• The S&P Global Manufacturing PMI for June came in at 48.8, below the 49.6 forecast and the previous 49. Despite the lower result, USD/CAD was little affected.

Canadian Dollar Technical Analysis: USD/CAD Could Reversal In Line With Long-Term Uptrend

USD/CAD is in a long-term uptrend on the weekly chart from the 2021 lows. It has been consolidating in a wide sideways range since October 2022 and is currently at the bottom of that range. Since the trend has a tendency to extend the probability, therefore, it favors the longs over the shorts.

The USD/CAD appears to have completed a price pattern of measured movement from the March 2023 highs. The measured movement is a 3-wave zig-zag price pattern, much like an ABC correction in which the first and second the third waves have a similar length (waves A and C on the chart below).

The measured move that has formed in the USD/CAD looks like it is probably complete as waves A and C are almost the same length. If so, this suggests that the price has probably bottomed out and is about to start a bullish cycle.

US Dollar vs. Canadian Dollar: Weekly Chart

There is also a confluence of support just below the June lows at the late 1.30, made up of several longer moving averages and a main trend line. This is likely to support prices at this level and reduce the chances of a breakdown. Only a decisive break below 1.3050 would show that this fat weight support band has been broken for good. A decisive bearish breakout is one that is accompanied by a longer than normal red candlestick or three red candlesticks in a row.

USD vs CAD: Daily Chart

The daily chart further suggests the possibility of a bullish recovery. The move higher from the June 27 low has been accompanied by strong momentum, as shown by the high reading of the Relative Strength Index (RSI) momentum indicator, which is higher than when prices were higher before the June low. market.

A decisive break above the key lower high of 1.3270 would signal a near-term reversal. This move could trigger a rally to 1.3400 and the 50-day SMA. Thus, the short-term trend would align with the long-term uptrend.