Canadian Dollar Talking Points
USD/CAD trades to a contemporary month-to-month excessive (1.3108) after retracing the decline from the beginning of the week, however the change fee could stage one other failed try to check the yearly excessive (1.3224) because the replace to Canada’s Gross Domestic Product (GDP) report is anticipated to indicate a pickup within the progress fee.
USD/CAD Rate Eyes Yearly High Ahead of Canada GDP Report
USD/CAD extends the advance from the 200-Day SMA (1.2769) as Federal Reserve Chairman Jerome Powell warns that “restoring worth stability will possible require sustaining a restrictive coverage stance for a while,” and hypothesis surrounding the Fed’s hiking-cycle could proceed to affect the change fee amid rising expectations for one more 75bp fee hike.
Nevertheless, Canada’s GDP report could curb the latest advance in USD/CAD because the financial system is anticipated to develop 4.4% within the second quarter of 2022 after increasing 3.1% every year the earlier interval, and a optimistic growth could sway the Bank of Canada (BoC) because the “Governing Council continues to guage that rates of interest might want to rise additional.”
As a consequence, the BoC could come beneath strain to ship one other 100bp fee hike as “inflation in Canada is greater and extra persistent than the Bank anticipated in its April Monetary Policy Report (MPR),” however indicators of a slowing financial system could push Governor Tiff Macklem and Co. to regulate their method on the subsequent assembly on September 7 as “growth is anticipated to sluggish to about 2% within the third quarter.”
In flip, a weaker-than-expected GDP report could generate a bearish response within the Canadian Dollar because it sparks hypothesis for smaller BoC rate hikes, and an additional advance in USD/CAD could gasoline the latest flip in retail sentiment just like the conduct seen earlier this 12 months.
The IG Client Sentiment report reveals 40.87% of merchants are at the moment net-long USD/CAD, with the ratio of merchants quick to lengthy standing at 1.45 to 1.
The variety of merchants net-long is 11.18% decrease than yesterday and 9.85% decrease from final week, whereas the variety of merchants net-short is 3.07% greater than yesterday and 10.35% greater from final week. The decline in net-long place comes as USD/CAD trades to a contemporary month-to-month excessive (1.3108), whereas the rise in net-short curiosity has fueled the flip in retail sentiment as 52.97% of merchants have been net-long the pair final week.
With that stated, a pickup in Canada’s progress fee could curb the latest advance in USD/CAD because it raises the scope for one more 100bp BoC fee hike, however the change fee could stage additional makes an attempt to check the yearly excessive (1.3224) because it seems to be monitoring the optimistic slope within the 200-Day SMA (1.2769).
USD/CAD Rate Daily Chart
Source: Trading View
- USD/CAD trades to a contemporary month-to-month excessive (1.3108) because it continues to increase the advance from the 200-Day SMA (1.2769), and the change fee could stage additional makes an attempt to check the yearly excessive (1.3224) because it seems to be monitoring the optimistic slope within the transferring common.
- The transfer again above the 1.3030 (50% enlargement) to 1.3040 (50% enlargement) space brings the 1.3200 (38.2% enlargement) deal with on the radar, with a break above the yearly excessive (1.3224) opening up the 1.3290 (61.8% enlargement) to 1.3310 (50% retracement) area.
- However, lack of momentum to check the 1.3200 (38.2% enlargement) deal with could push USD/CAD again in the direction of the 1.3030 (50% enlargement) to 1.3040 (50% enlargement) space, with the following space of curiosity coming in round 1.2980 (61.8% retracement).
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong