USD/CAD falls below 1.2950 on USD weakness ahead of Powell’s speech

• USD/CAD was down 0.15% on Thursday as market traders brace for further hawkish rhetoric from the Fed.
• The US GDP figure for the second quarter, although better than expected, remains in recession territory.
• USD/CAD Price Analysis: Traders Regain 1.3000 to Open Door to Test All-Time Highs; otherwise a drop to 1.2800 is possible.

The USD/CAD declines to fresh weekly lows in the American session amid positive market sentiment, spurred by China’s CNY 1 trillion stimulus, aimed at solving the housing and construction crisis. Meanwhile, traders brace for Fed Chairman Jerome Powell’s speech in Jackson Hole on Friday.

USD/CAD reached a daily high around 1.2975 before falling to its daily low around 1.2895 as oil prices rose. However, it bounced off the lows, above the psychological figure of 1.2900. At the time of writing, the USD/CAD is trading at 1.2947, down 0.15%.

USD/CAD fell on the general weakness of the US dollar. The dollar index, a gauge of the dollar’s value against a basket of peers, is down 0.18% at 108,405, courtesy of market participants, who have either stood on the sidelines or taken profits ahead of the speech. from Powell. Meanwhile, US Treasury yields fell from weekly highs, in particular the 10-year Treasury yield fell one percentage point to 3,095%.

Growth in the US, measured by the Gross Domestic Product (GDP) for the second quarter of 2022, in its second reading, exceeded expectations. Even so, it shows signs of recession, standing at -0.6%, above estimates of 0.8%.

At the same time, initial jobless claims for the week ending August 20 came in below estimates at 243,000, versus 253,000 expected by market analysts. The drop in jobless claims continued to show a robust labor market, further fueling expectations of a 75 basis point Federal Reserve rate hike.

Meanwhile, Fed officials, led by Esther George of the Kansas City Fed, said the US central bank would keep rates above 4%, and they want to see a full quarter of consistent inflation data to know ahead. where things go

Earlier, Atlanta Fed Raphael Bostic said he is not determined to go up 50 or 75 basis points and stressed that expectations of a Fed pivot are “wrong.” Echoing his comments, Philadelphia Fed Patrick Harker said he likes to see the Federal Funds Rate (FFR) at 3.4%, and it may stay there for a while. He is in favor of a 50 basis point increase, but he wants to see the next report on inflation.

What to do

With Jerome Powell’s Jackson Hole speech, an absent Canadian agenda will leave traders leaning on US dollar dynamics. Before, however, the US inflation numbers, i.e. the PCE price index and core PCE, would shed some light as it is the Fed’s favorite inflation gauge.

USD/CAD Price Analysis: Technical Outlook

USD/CAD is trading close to the 50-day EMA around 1.2912, although it has reached a daily low of 1.2864. From a daily chart point of view, the USD/CAD remains sloping higher, despite the Relative Strength Index (RSI) pointing towards the 50 mid-line, indicating that selling pressure is gathering momentum. However, if the RSI breaks the midline, some bearish pressure is expected, bringing into play the 50 and 20 day EMAs, each at 1.2912 and 1.2883, respectively. On the other hand, if the USD/CAD breaks above 1.3000, it is expected to retest the highs of the year.

Technical levels