- USD/CAD will end the week with solid gains of 0.76% after a volatile week.
- Positive US retail sales and UoM consumer sentiment eased the Fed’s intentions for a hike of more than 75 basis points.
- USD/CAD Price Analysis: A daily close below 1.3076 could pave the way for a correction to 1.2930.
The USD/CAD extends its decline from weekly highs around 1.3220 hit on Thursday, buoyed by elevated US PPI data which showed inflation far from peaking, prompting expectations of a 100 basis point hike by the Fed, which were later eased when Fed policymakers objected to those assumptions.
USD/CAD is trading at 1.3029, down nearly 0.70%, on a day where USD/CAD started trading around 1.3110, near daily highs, and tumbled on US dollar weakness, reaching a daily low around 1.3013, at the beginning of the American session.
USD/CAD falls on risk, dollar softness and high oil prices
Global equities present an upbeat market environment. However, the market narrative remains the same, with high inflation, central banks around the world raising rates and recession fears lingering on traders’ minds. The greenback continues to weigh, with a decline of almost 0.50%, according to the US dollar index, which stands at 108,111. In the field of raw materials, US crude oil, specifically WTI, rises 1.49%, to $97.90 BPD, which is a headwind for the USD/CAD, due to the close correlation between the Canadian dollar and oil prices.
On Friday, the US Commerce Department reported that US retail sales rose 1% year-over-year, beating estimates of 0.8%, and also topped May’s dismal reading of -0.3%, a a sign of consumer resilience and strength, despite Fed hikes. Additionally, University of Michigan Consumer Sentiment came in at 51.1 vs. estimates of 49.9, beating forecasts, while Inflation expectations moderated as consumers see inflation at 2.8% over a 5-year horizon, down from 3.1% in June.
On the Canadian side, Friday’s agenda was empty. However, the Bank of Canada’s decision to raise interest rates by 100 basis points caught markets by surprise and capped dollar gains. At the press conference, Bank of Canada Governor Macklem said that raising rates early now would help avoid even higher rates in the future, while adding that early rate hike cycles are often followed by softer landings.
What to watch out for
Next week, the Canadian docket will include homebuilding data, inflation and retail sales. In the US, the calendar will be packed with data on housing starts, building permits, existing home sales, initial jobless claims and global PMIs for July.
USD/CAD Price Analysis: Technical Outlook
From a technical point of view, the USD/CAD favors the longs, but a daily close below the May 12 high at 1.3076 could open the door for a pullback before resuming the rise. Additionally, traders should note that the Relative Strength Index (RSI) at 56.68 pierced below the RSI’s 7-day SMA, triggering a sell signal that a cross below the 50 midline could further confirm.
Therefore, the first support for the USD/CAD will be 1.3000. If it breaks below, the pair will slide towards the 13 Jul low at 1.2936, followed by a push towards the 50-day moving average (DMA) at 1.2862.
Technical levels
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
