Published on Jun 20, 2023

Daily Analysis For USD/CAD 20-06-2023

USD/CAD Analysis

Key Points: -

· USD/CAD continues to gain momentum for the second consecutive day, extending its recovery from the year-to-date low.

· The Canadian dollar (CAD) faces pressure due to lower oil prices, which in turn provides support to the USD, benefiting from a modest strengthening.

· The USD receives some support from an increase in US bond yields and a slightly cautious market sentiment, favoring the demand for the safe-haven currency.

Today's Scenario: -

The USD/CAD pair continues to build on its modest recovery from its lowest level since September 2022, gaining positive traction for the second consecutive day on Tuesday. During the Asian session, spot prices maintain a bullish tone and are currently trading around the 1.3225-1.3230 region, representing a 0.15% increase for the day.

The decline in crude oil prices persists due to concerns about a global economic slowdown, particularly in China, which is expected to impact fuel demand. Consequently, the commodity-linked Canadian dollar (CAD) is undermined, while the modest strength of the US dollar (USD) acts as a tailwind for the USD/CAD pair. It's important to note that recent macroeconomic data from China indicates a loss of momentum in the world's second-largest economy compared to earlier this year.

Despite reports of China considering an extensive stimulus package to bolster economic support and the expected reduction of one-year and five-year Loan Prime Rates (LPRs) by the People's Bank of China (PBoC), market concerns persist. This is evident from the prevailing cautious sentiment, coupled with an increase in US Treasury bond yields, which leads to a third consecutive day of gains for the safe-haven USD and provides support for the USD/CAD pair.

Although the Federal Reserve (Fed) refrained from raising interest rates last week, they signaled the possibility of a rate hike by as much as 50 basis points by the end of this year. The market reacted swiftly and is currently pricing in another 25 basis points increase during the July FOMC meeting, contributing to a rise in US bond yields. However, recent softer economic data from the United States raises questions about the Fed's scope for further rate hikes.

Therefore, market attention now turns to Fed Chair Jerome Powell's congressional testimony on Wednesday and Thursday. Investors will closely analyze his remarks for any fresh indications regarding the future path of rate hikes. These insights will play a crucial role in determining the near-term direction of the USD and offer meaningful impetus to the USD/CAD pair. In the meantime, traders should monitor oil price dynamics for short-term trading opportunities around key levels.

Diagram of USD/CAD: -

Economic Events: -

Date Event Impact Currency

02:30 (New Zealand) Westpac Consumer Confidence Low NZD

06:45 (China) Loan Prime Rate 1Y Medium CNY

06:45 (China) Loan Prime Rate 5Y Medium CNY

07:00 (Australia) RBA Meeting Minutes High AUD

07:05 (Australia) RBA Kent Speech Medium AUD

09:00 (Australia) RBA Bullock Speech Medium AUD

10:00 (Japan) Industrial Production MoM Low JPY

10:00 (Japan) Industrial Production YoY Low JPY

10:00 (Japan) Capacity Utilization MoM Low JPY

10:30 (Estonia) PPI YoY Low EUR

10:30 (Estonia) PPI MoM Low EUR

10:30 (Finland) Unemployment Rate Low EUR

11:30 (Germany) PPI MoM Medium EUR

11:30 (Germany) PPI YoY Low EUR

11:30 (Switzerland) Balance of Trade Medium CHF

13:30 (Euro Area) Current Account Low EUR

13:30 (Euro Area) Current Account s.a Low EUR

13:30 (Greece) Current Account Low EUR

13:30 (Euro Area) ECB Enria Speech Low EUR

14:30 (Euro Area) Construction Output YoY Low EUR

14:30 (Italy) Current Account Low EUR

14:30 (United Kingdom) 5-Year Treasury Gilt Auction Low GBP

15:00 (Germany) 2-Year Schatz Auction Low EUR

15:30 (Portugal) PPI YoY Low EUR

15:30 (Portugal) PPI MoM Low EUR

15:30 (Luxembourg) Unemployment Rate Low EUR

15:30 (Slovakia) Unemployment Rate Low EUR

16:00 (United States) Fed Bullard Speech Medium USD

17:15 (Euro Area) ECB McCaul Speech Low EUR

18:00 (United States) Housing Starts Medium USD

18:00 (United States) Building Permits High USD

18:00 (United States) Housing Starts MoM Medium USD

18:00 (United States) Building Permits MoM Medium USD

19:00 (Slovenia) Unemployment Rate Low EUR

19:15 (Euro Area) ECB McCaul Speech Low EUR

20:30 (New Zealand) Global Dairy Trade Price Index Low NZD

21:00 (United States) 3-Month Bill Auction Low USD

21:00 (United States) 6-Month Bill Auction Low USD

21:15 (United States) Fed Williams Speech Medium USD

22:30 (El Salvador) Balance of Trade Low USD

22:40 (Euro Area) ECB Guindos Speech High EUR

Buy Scenario: -

USD/CAD pair broke below a support trendline that originated from the November 2022 lows, surpassing the level around 1.3314. This led to a further decline, pushing the USD/CAD to new year-to-date (YTD) lows of 1.3177 before experiencing a rebound above 1.3200.

It is important to note that the overall bias for the pair remains downward. However, if the USD/CAD manages to trade above the daily low of 1.3314 from May 8, it could potentially lead to a period of sideways movement. In such a scenario, the first level of resistance for the USD/CAD would be the 20-day Exponential Moving Average (EMA) at 1.3357, followed by the 200-day EMA at 1.3405. Till we do not advise to buy USD/CAD.

Sell Scenario: -

On the contrary, if the USD/CAD drops below 1.3200, further downside is expected, with the pair likely to challenge the YTD low and potentially test the September 13 low at 1.2954.

It is worth noting that the Relative Strength Index (RSI) suggests that the pair is currently oversold, while the three-day Rate of Change (RoC) indicates a downward trajectory for the pair. Till we do not advise to sell USD/CAD.