Published on Jun 15, 2023

Daily Analysis For USD/CAD 15-06-2023

USD/CAD Analysis

Key Points: -

· The USD/CAD pair is encountering strong resistance around the 1.3350 level as the upside momentum of the USD Index shows signs of exhaustion.

· Although the market initially reacted with optimism to the Federal Reserve's decision to pause its rate-hiking cycle, the mood turned cautious due to the central bank's hawkish interest rate guidance.

· The Canadian Dollar is expected to experience some volatility following the release of the monthly Manufacturing Sales data.

Today's Scenario: -

In the early European session, the USD/CAD pair encountered selling pressure near the immediate resistance level of 1.3350. Despite the Federal Reserve's plans for additional interest rate hikes that would maintain the policy divergence between the US central bank and other global banks, the Canadian Dollar has been losing strength.

The decline in S&P500 futures during the Asian session has carried over to Europe, as the initial optimism sparked by the Federal Reserve's decision to pause its rate hikes has been offset by caution arising from the central bank's hawkish interest rate guidance.

Earlier, the US Dollar Index (DXY) recovered all its losses and climbed above 103.30 after Fed Chair Jerome Powell confirmed that more interest rate hikes are on the horizon. However, the US Dollar is now struggling to maintain its strength. It is important to note that while headline inflation in the United States has softened, core inflation remains persistent due to tight labor market conditions.

In his monetary policy statement, Fed Chair Powell mentioned, "Not seeing a lot of progress on core PCE inflation" and expressed the desire to see a decisive downward movement in core PCE.

The Fed's hawkish dot plot has impacted the demand for US government bonds, resulting in a significant rise in the 10-year US Treasury yields to around 3.83%.

The Canadian Dollar is expected to experience some volatility following the release of Canada's monthly Manufacturing Sales data for April. Economic data suggests a contraction of 0.2%, compared to the previous expansion of 0.7%. Higher interest rates implemented by the Bank of Canada (BoC) have led firms to underutilize their production capacity, resulting in a reduction in overall factory activity.

In the oil market, prices have shown a recovery after a correction to around $68.00, partly influenced by the USD Index meeting resistance. It is noteworthy that Canada is the primary exporter of oil to the US, and an increase in oil prices would strengthen the Canadian Dollar.

Diagram of USD/CAD: -

Economic Events: -

Date Event Impact Currency

0:00 (United States) Fed Press Conference High USD

4:15 (New Zealand) GDP Growth Rate YoY Medium NZD

4:15 (New Zealand) GDP Growth Rate QoQ Medium NZD

5:20 (Japan) Foreign Bond Investment Low JPY

5:20 (Japan) Stock Investment by Foreigners Low JPY

5:20 (Japan) Machinery Orders YoY Medium JPY

5:20 (Japan) Machinery Orders MoM Medium JPY

5:20 (Japan) Imports YoY Low JPY

5:20 (Japan) Balance of Trade High JPY

5:20 (Japan) Exports YoY Medium JPY

5:30 (Euro Area) Eurogroup Meeting Medium EUR

7:00 (Australia) Consumer Inflation Expectations Low AUD

7:00 (Australia) Part Time Employment Chg Medium AUD

7:00 (Australia) Participation Rate Low AUD

7:00 (Australia) Full Time Employment Chg Medium AUD

7:00 (Australia) Unemployment Rate High AUD

7:00 (Australia) Employment Change High AUD

7:00 (Australia) RBA Bulletin Medium AUD

7:00 (China) PBoC 1-Year MLF Announcement Low CNY

7:00 (China) House Price Index YoY Medium CNY

7:30 (China) Unemployment Rate High CNY

7:30 (China) Retail Sales YoY High CNY

7:30 (China) Industrial Production YoY High CNY

7:30 (China) Fixed Asset Investment (YTD) YoY Medium CNY

9:05 (Japan) 3-Month Bill Auction Low JPY

10:00 (Japan) Tertiary Industry Index MoM Low JPY

10:00 (Netherlands) Unemployment Rate Medium EUR

10:30 (Finland) GDP YoY Low EUR

12:00 (Switzerland) Producer & Import Prices MoM Low CHF

12:00 (Switzerland) Producer & Import Prices YoY Low CHF

12:15 (France) Inflation Rate MoM Medium EUR

12:15 (France) Inflation Rate YoY Medium EUR

12:15 (France) Harmonised Inflation Rate MoM Low EUR

12:15 (France) Harmonised Inflation Rate YoY Low EUR

13:30 (Spain) Balance of Trade Medium EUR

14:10 (Spain) Obligacion Auction Low EUR

14:10 (Spain) Bonos Auction Low EUR

14:30 (Euro Area) Balance of Trade Medium EUR

14:30 (France) 5-Year OAT Auction Low EUR

14:30 (France) 3-Year OAT Auction Low EUR

14:30 (Greece) Construction Output YoY Low EUR

14:30 (Montenegro) Inflation Rate YoY Low EUR

14:30 (Montenegro) Harmonised Inflation Rate YoY Low EUR

14:30 (Montenegro) Inflation Rate MoM Low EUR

15:00 (Belgium) Construction Output YoY Low EUR

15:30 (France) 10-Year Index-Linked OAT Auction Low EUR

15:30 (Ireland) Balance of Trade Low EUR

16:00 (Portugal) Economic Activity YoY Low EUR

16:00 (Portugal) Private Consumption YoY Low EUR

17:45 (Canada) Housing Starts Medium CAD

17:45 (Euro Area) ECB Interest Rate Decision High EUR

17:45 (Euro Area) Marginal Lending Rate Low EUR

17:45 (Euro Area) Deposit Facility Rate High EUR

18:00 (Canada) Manufacturing Sales MoM Low CAD

18:00 (United States) Import Prices YoY Low USD

18:00 (United States) Export Prices YoY Low USD

18:00 (United States) Import Prices MoM Medium USD

18:00 (United States) Export Prices MoM Medium USD

18:00 (United States) NY Empire State Manufacturing Index Medium USD

18:00 (United States) Retail Sales YoY High USD

18:00 (United States) Retail Sales Ex Autos MoM High USD

18:00 (United States) Retail Sales MoM High USD

18:00 (United States) Philly Fed Business Conditions Low USD

18:00 (United States) Philly Fed Employment Low USD

18:00 (United States) Philly Fed CAPEX Index Low USD

18:00 (United States) Philly Fed Prices Paid Low USD

18:00 (United States) Philly Fed New Orders Low USD

18:00 (United States) Philadelphia Fed Manufacturing Index Medium USD

18:00 (United States) Jobless Claims 4-week Average High USD

18:00 (United States) Continuing Jobless Claims High USD

18:00 (United States) Initial Jobless Claims High USD

18:00 (United States) Retail Sales Ex Gas/Autos MoM High USD

18:15 (Euro Area) ECB Press Conference High EUR

18:30 (Belgium) Balance of Trade Low EUR

18:30 (Kosovo) GDP Growth Rate YoY Low EUR

18:45 (United States) Capacity Utilization Low USD

18:45 (United States) Manufacturing Production YoY Low USD

18:45 (United States) Industrial Production YoY Medium USD

18:45 (United States) Industrial Production MoM Medium USD

18:45 (United States) Manufacturing Production MoM Low USD

19:30 (United States) Business Inventories MoM Medium USD

19:30 (United States) Retail Inventories Ex Autos MoM Low USD

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

21:00 (United States) 8-Week Bill Auction Low USD

21:00 (United States) 4-Week Bill Auction Low USD

21:05 (United Kingdom) BoE Cunliffe Speech Low GBP

21:30 (Canada) 2-Year Bond Auction Low CAD

21:30 (United States) 15-Year Mortgage Rate Low USD

21:30 (United States) 30-Year Mortgage Rate Low USD

Buy Scenario: -

The pair is currently extending its upward movement, breaking out of a descending trend channel that formed on June 5. The bullish momentum is supported by positive MACD signals and the RSI (14) line hovering around the 50.0 level.

However, it's important to acknowledge that the top line of the mentioned bullish channel, around 1.3350 at present, poses a challenge for further advances in the USD/CAD pair.

If the pair manages to break above this level, the 50-day Simple Moving Average (SMA), located near 1.3365, and a previous support line that dates back two months, around 1.3390, will be the next levels to watch. Ultimately, the 1.3400 round figure will serve as a strong resistance, defending against further gains for USD/CAD bears. Till we do not advise to buy USD/CAD.

Sell Scenario: -

On the downside, the immediate support for the USD/CAD pair is found at the 1.3300 round figure, followed by the bottom line of the descending trend channel, currently around 1.3265.

It's worth noting that the yearly low around 1.3260 acts as an additional barrier before potentially directing USD/CAD bears towards the November 2022 low of approximately 1.3225. Till we do not advise to sell USD/CAD.