USD / CAD eyes move to 1.2700 low ahead of BoC Governor Macklem’s speech

• The USD CAD has fallen back below 1.2750 and has entered 1.2730 with the loonie performing well amid cheerful crude prices.
• The pair appears to be consolidating within a pennant and a break to the downside could trigger a move below 1.2700.

He USD / CAD It has been trading on a downward bias in recent trading and the pair has fallen below the 1.2750 level to 1.2730, a decent reversal from Monday’s highs around 1.2790. A rebound in sentiment in the US crude oil and equity markets appears to be helping the loonie, while data on Canadian home starts (Nov) and manufacturing sales (Oct) were largely ignored.

Canadian data plays a minor role, but loonie traders are likely to keep an eye on Macklem

The Canadian Housing Starts data was released at 1:15 PM GMT and rose to 246,000 in November from 215,000 in October (215,000 expected). Tuesday’s housing figures show that the housing sector of the Canadian economy remains remarkably strong in the face of this year’s pandemic. Homes started fell to more than 10-year lows at 150,000 in April at the height of the Covid-19 lockdowns, but a monthly reading of 246,000 places November among the top five months for homes started in the past five years .

Shortly thereafter, the manufacturing sales data for October came out at 1:30 PM GMT and was a disappointment; the month-on-month sales growth rate slowed sharply from 1.5% in September to just 0.3% in October, disappointing expectations for a 0.6% increase. Worryingly, new factory orders (seen as a leading indicator of where manufacturing sales will go in the coming months) fell 3.9% on the month from a 4.3% increase in September.

While both data points were largely ignored by a Canadian dollar that seems more interested in trading based on what is happening in the crude oil markets and relative to US dollar sentiment, it is more likely that traders from the Canadian dollar pay some attention to a speech later. Tuesday by the Governor of the Bank of Canada, Tiff Macklem.

Last week, BoC Deputy Governor Beaudry made some interesting comments, noting that the bank could cut rates further without going into negative territory if the economy entered a persistent recession, before adding that other options for relaxation included expanding their QE program or employing yield curve targeting. Additionally, in the Q&A that followed his opening speech, Beaudry was pressed on whether the bank is actively considering lowering rates, to which he replied that while nothing has been decided yet, this is a potential option and the bank is thinking about it. Beaudry was also asked during the question and answer session about how concerned he is regarding CAD’s strength. He replied that the exchange rate is very important for the outlook and that the strength of the CAD is an element that the BoC is considering when it meets its TPM for January.

Despite the lack of a negative reaction in the CAD at the time, Beaudry appeared to open the door to further easing of the BoC in January which, it seems, could motivate a slowdown on the recent strength of the CAD. If not, why would you make the main theme of your speech more flexible? Traders will be aware of any comments on the possibility of further rate cuts or on the BoC governor’s own CAD valuation when he speaks at 19:30 GMT.

USD / CAD consolidates within the medium-term pennant

USD / CAD is currently consolidating within a medium-term pennant that is capped by a downtrend line linking the lows of December 2 and the highs of December 9 and 14, and supported by an uptrend. that links the lows of December 10 and 14. A break to the downside of this trend line would likely open the door for a move towards fresh multi-year lows and the psychological level of 1.2700, which a break to the upside could mean a move back to weekly highs at 1.2790 and perhaps again above the 1.2800 level.

1 hour chart