- USD/CAD is approaching the key support zone above 1.3600 ahead of the release of Canadian inflation data.
- The Canadian dollar has strengthened recently due to rising oil prices and a weaker US dollar.
- Upcoming Canadian inflation and retail sales data, as well as a statement from Fed policymakers, will be crucial for the direction of USD/CAD.
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USD/CAD is approaching a key support zone just above the 1.3600 level in anticipation of tomorrow’s Canadian inflation data. The Canadian Dollar has strengthened in recent weeks due to rising WTI crude oil prices and significant weakness in the USD.
The Canadian economy has come under scrutiny over the past few months and has shown signs of slowing. During this period, the unemployment rate has risen, but inflation has fallen to the latest low of around 2.7% year-on-year, matching the lowest figure this year.
Inflation rate (year-on-year)
Source: TradingEconomics
Given a range of data, including rising unemployment and declining retail sales, the Bank of Canada (BoC) will be eager to prevent inflation from rising, which would further complicate things for the Bank of Canada, which has already cut interest rates by 50 basis points this rate cycle and could cut rates further if economic growth remains sluggish.
Avoiding a rise in inflation is therefore likely to be the Bank of Canada’s top priority ahead of its next central bank meeting.
Canadian inflation and retail sales data released
Canadian inflation data is due to be released tomorrow, followed by statements from several Federal Reserve policymakers. The Fed’s recent dovish stance has put pressure on the US Dollar since Friday and has continued into today’s session, with the DXY nearing new lows.
Friday’s retail sales data will be important as well, especially since poor May numbers have raised concerns about a possible economic recession. The Bank of Canada is hoping to see a big improvement in June, when the effects of its interest rate cuts will start to be felt.
Source: For all the market-moving economic indicators and events, MarketPulse Economic Calendar. (Click to enlarge)
Technical Analysis
From a technical perspective, USD/CAD has fallen sharply from the highs near 1.3900 reached on August 5. This decline has been fuelled by changing fundamental data and the interest rate cutting environment, causing USD/CAD to fall faster than normal.
A wedge pattern was broken when the price broke through the 1.3900 level, but the lower limit of this wedge coincides with a key support zone around the 1.3600 mark.
Additionally, the 200-day moving average is located near this level, forming an important confluence zone that is theoretically expected to provide support.
Tomorrow’s inflation data could move the pair in either direction depending on its results, but the DXY will also play a pivotal role in determining the next move for USD/CAD.
USD/CAD Chart, August 19, 2024
Source: TradingView (Click to enlarge)
support
resistance
- 1.3699 (100-day moving average)
- 1.3736
- 1.3790
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As an analyst for the past three years, he has honed his skills in various financial disciplines including technical analysis, interpreting economic data, price action strategies, analysing geopolitical influences on global markets, etc. Zain is currently working towards his Capital Markets & Security Analyst (CMSA) certification through the Corporate Finance Institute (CFI) and has completed modules in Fixed Income Fundamentals, Portfolio Management Fundamentals, Equity Market Fundamentals, Introduction to Capital Markets and Derivatives Fundamentals.
He is also a regular guest on South African radio and television programmes providing insight into global markets and economies and has contributed to the development of a Financial Markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF Level 6 in South Africa.
