USDCAD Forecast Ahead of Canada Jobs Data

Jul 8, 2021 06:43 PM ET
USDCAD Forecast Ahead of Canada Jobs Data

The USDCAD has risen in the past four consecutive days, helped by a relatively strong US dollar and volatile crude oil prices. The pair rose to 1.2523, which was the highest level since April 21. It is also 4.35% above the lowest level in June.

US dollar strength

The USDCAD has risen mostly because of the US dollar. The dollar index, which measures the performance of the currency against a basket of currencies, has risen to the highest level since April 6. 

The gains accelerated on Wednesday evening after the Federal Reserve released minutes of the last meeting. In that meeting, the bank decided to leave interest rates at the range of 0.0% and 0.25%. It also pledged to continue with its asset purchases program. 

The minutes showed that some FOMC committee members started making the case of tapering of the asset purchases. They argued that it was necessary to reduce the $120 billion monthly quantitative easing pace since the economy recorded a strong recovery. They pointed to the strong inflation and the tightening labour market. 

At the same time, some members cautioned that the strength of this recovery was temporary considering that it coincided with the reopening and Joe Biden’s stimulus package. Therefore, the bank will likely continue these discussions when it meets later this month.

Meanwhile, the USDCAD has rallied at a time when demand for US bonds has risen. The benchmark 10-year yield declined to below 1.30% this week, which was significantly lower than the year-to-date high of 1.76%. This performance signals that investors are no longer worried about inflation as they were a few months ago.

Canada economy and oil prices

The USDCAD has risen even after some strong signals from the Canadian economy. First, data published by Ivey showed that business activity in the country did well in June. The PMI rose from 64.7 in May to 71.9 in June as the country eased some of its restrictions. This was the biggest increase since March when it rose to a ten-year high of 72.9. A PMI reading of 50 and above is a sign of an increase in business activity.

According to Ivey, Canadian businesses reported strong local and international demand for their products. As a result, they boosted their employment as their confidence rose. Canada is set to publish its June jobs numbers on Friday this week. These numbers are expected to show that the economy added thousands of jobs in June. It has lost jobs in the past two consecutive months.

The USDCAD is also reacting to the movements in the crude oil prices. The price of crude oil surged to a six-year high this week after OPEC+ members disagreed on the way forward. While some members wanted to increase production gradually, others wanted to maintain the status quo. Brent is trading at $73.46, while the West Texas Intermediate (WTI) is trading at $72.

USDCAD technical analysis

The daily chart shows that the USDCAD pair has gained momentum in the past few days. It has already moved above the important resistance level at 1.2482, which was the highest level on June 22. 

It has also moved above the 50-day Volume-Weighted Moving Average (VWMA) and formed a small inverted head and shoulders pattern while the Relative Strength Index (RSI) has kept rising.

USD/CAD chart

Therefore, the pair will likely keep rising as bulls target the next key resistance at 1.2800. On the flip side, a move below 1.2250 will invalidate this scenario.

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