Published on Jun 14, 2023

Daily Analysis For USD/CAD 14-06-2023

USD/CAD Analysis

Key Points: -

· USD/CAD is struggling to maintain its bounce from a four-month low and remains under pressure near the intraday lows.

· The price of WTI crude oil has trimmed its weekly losses due to a decline in the US Strategic Petroleum Reserve (SPR), which has renewed hopes for oil demand, particularly in the context of a weaker US dollar.

· The recent US inflation data supports expectations that the Federal Reserve (Fed) may pause its rate hike trajectory, which has put downward pressure on the US dollar. This has implications for USD/CAD.

· In terms of upcoming events, the focus for traders of the Canadian dollar (CAD) pair will be on the Federal Open Market Committee (FOMC) projections and the speech by Fed Chair Jerome Powell. These will provide important insights and guidance for the direction of the pair.

· It is essential for USD/CAD traders to closely monitor these events to gain clarity and determine the future course of the pair.

Today's Scenario: -

Despite the sluggishness of the US dollar, USD/CAD is currently experiencing selling pressure as market participants prepare for the Federal Reserve's interest rate decision. The pair is trading with minor losses around 1.3300. The decline in the USD/CAD pair is being driven by the recovery in WTI crude oil, which is Canada's main export item. Additionally, there are hopes that the US central bank will refrain from raising interest rates.

WTI crude oil has seen minor gains and is trading around $69.60. It has pared its weekly losses for the third consecutive week, and this has supported the USD/CAD pair. The expectation of increased oil demand in the US, as the country taps into its Strategic Petroleum Reserves (SPR) to stabilize energy prices, is also contributing to the strength of crude oil prices. Notably, the US SPR inventory is currently at 353 million barrels, which is a 33% decrease compared to the levels seen a year ago.

Meanwhile, the US dollar remains uncertain and is trading near three-week lows, with the US Dollar Index (DXY) retreating from its intraday high to around 103.30. The greenback is being affected by the market's dovish expectations regarding the Federal Reserve. According to the latest reading from the CME FedWatch Tool, there is a more than 90% probability of no rate hike by the Fed in its upcoming monetary policy meeting, up from around 75% probability previously. This shift in expectations can be attributed to the downbeat US inflation data, with the Consumer Price Index (CPI) dropping more than expected to 0.1% on a monthly basis and 4.0% on a yearly basis. However, the Core CPI figures, which exclude food and energy, met forecasts at 0.4% monthly and 5.3% yearly. The decline in the headline CPI justifies the market's anticipation of no rate hike by the Federal Reserve.

The cautious optimism prevailing in the markets, as indicated by the S&P 500 Futures and US Treasury bond yields, is also putting downward pressure on the US dollar and, consequently, the USD/CAD pair.

Looking ahead, the release of the US Producer Price Index (PPI) for May and other risk catalysts will likely influence USD/CAD trading before the Federal Reserve's decision. Traders will closely monitor the central bank's economic forecasts, dot-plot, and the press conference by Chairman Jerome Powell for clearer guidance on the future direction of the pair.

Diagram of USD/CAD: -

Economic Events: -

Date Event Impact Currency

02:00 (United States) API Crude Oil Stock Change Medium USD

04:15 (New Zealand) Current Account Medium NZD

05:30 (New Zealand) Food Inflation YoY Low NZD

10:00 (Netherlands) Balance of Trade Low EUR

10:30 (Finland) Inflation Rate YoY Low EUR

10:30 (Finland) Inflation Rate MoM Low EUR

10:30 (Finland) CPI Low EUR

11:30 (United Kingdom) GDP 3-Month Avg Medium GBP

11:30 (United Kingdom) Goods Trade Balance Non-EU High GBP

11:30 (United Kingdom) Balance of Trade Low GBP

11:30 (United Kingdom) Construction Output YoY Low GBP

11:30 (United Kingdom) Industrial Production YoY Low GBP

11:30 (United Kingdom) Industrial Production MoM Medium GBP

11:30 (United Kingdom) Manufacturing Production YoY Low GBP

11:30 (United Kingdom) Manufacturing Production MoM Medium GBP

11:30 (United Kingdom) Goods Trade Balance High GBP

11:30 (United Kingdom) GDP YoY Low GBP

11:30 (United Kingdom) GDP MoM High GBP

11:30 (Germany) Wholesale Prices MoM Medium EUR

11:30 (Germany) Wholesale Prices YoY Medium EUR

12:30 (China) FDI (YTD) YoY Medium CNY

12:30 (Slovakia) Inflation Rate MoM Low EUR

12:30 (Slovakia) Inflation Rate YoY Low EUR

12:30 (Slovakia) Core Inflation Rate MoM Low EUR

12:30 (Slovakia) Core Inflation Rate YoY Low EUR

12:30 (Slovakia) CPI Low EUR

13:30 (France) IEA Oil Market Report Medium EUR

14:30 (Euro Area) Industrial Production MoM Medium EUR

14:30 (Euro Area) Industrial Production YoY Low EUR

14:30 (Montenegro) GDP Growth Rate YoY Low EUR

15:00 (Germany) 10-Year Bund Auction Medium EUR

15:30 (Portugal) Inflation Rate MoM Low EUR

15:30 (Portugal) Inflation Rate YoY Low EUR

15:30 (Portugal) CPI Low EUR

15:30 (Ireland) Residential Property Prices YoY Low EUR

15:30 (Ireland) Residential Property Prices MoM Low EUR

16:30 (United States) MBA 30-Year Mortgage Rate Medium USD

16:30 (United States) MBA Mortgage Applications Low USD

16:30 (United States) MBA Mortgage Refinance Index Low USD

16:30 (United States) MBA Mortgage Market Index Low USD

16:30 (United States) MBA Purchase Index Low USD

17:00 (United Kingdom) NIESR Monthly GDP Tracker Low GBP

18:00 (Canada) New Motor Vehicle Sales Low CAD

18:00 (United States) Core PPI MoM Medium USD

18:00 (United States) Core PPI YoY Low USD

18:00 (United States) PPI YoY Low USD

18:00 (United States) PPI MoM High USD

20:00 (United States) EIA Heating Oil Stocks Change Low USD

20:00 (United States) EIA Refinery Crude Runs Change Low USD

20:00 (United States) EIA Crude Oil Stocks Change Medium USD

20:00 (United States) EIA Distillate Stocks Change Low USD

20:00 (United States) EIA Gasoline Production Change Low USD

20:00 (United States) EIA Crude Oil Imports Change Low USD

20:00 (United States) EIA Gasoline Stocks Change Medium USD

20:00 (United States) EIA Cushing Crude Oil Stocks Change Low USD

20:00 (United States) EIA Distillate Fuel Production Change Low USD

21:00 (United States) 17-Week Bill Auction Low USD

23:30 (United States) Fed Interest Rate Decision High USD

23:30 (United States) FOMC Economic Projections High USD

23:30 (United States) Interest Rate Projection - 1st Yr Medium USD

23:30 (United States) Interest Rate Projection - 2nd Yr Medium USD

23:30 (United States) Interest Rate Projection - Current Medium USD

23:30 (United States) Interest Rate Projection - Longer Medium USD

Buy Scenario: -

On the buying side of USD/CAD pair, a break above the high of June 8 at 1.3388 could drive the pair towards the high of June 5 at 1.3462 and the psychological resistance level at 1.3500. Till we do not advise to buy USD/CAD.

Sell Scenario: -

The USD/CAD pair has recently tested the demand zone between 1.3270 and 1.3300 on a daily basis. Following the Federal Reserve's interest rate decision, the Loonie is expected to experience increased volatility. The presence of a downward-sloping 10-period Exponential Moving Average (EMA) at around 1.3380 suggests an extremely bearish short-term trend.

The Relative Strength Index (RSI) with a period of 14 has entered the bearish range of 20.00 to 40.00, indicating an ongoing downside momentum.

If the pair breaks below the low of June 13 at 1.3286, it could expose the USD/CAD to the low of November 15, 2022, at 1.3226, followed by the psychological support level at 1.3200. Till we do not advise to sell USD/CAD.