USD/CAD Eyes US Dollar Weakness and Bank of Canada Policy Decision

USD/CAD WAITS FOR CENTRAL BANK HINTS

New Bank of Canada (BoC) governor Tiff Macklem will today give financial markets the latest update of how the economy is currently fairing after recent better-than-expected data prints. The economy added 953k jobs in June, having created 290k positions in May, the largest increase in employment since records started. While a positive, and both numbers beat expectations by a wide margin, these near 1.25 million new jobs need to be balanced out against the loss of three million jobs in March and April.

CANADIAN EMPLOYMENT CHANGE

After a series of recent interest rate cuts, taking the lending rate down to 0.25%, governor Macklem may now look to use increased forward guidance to help steer the economy. Additional quantitative easing measures may also be mentioned although the current program still needs to be assessed as to its effectiveness.

The ongoing weakness in the US dollar is helping to push USD/CAD lower with the greenback pressing multi-month lows. The US dollar basket (DXY) is back below 96.00 and despite being in oversold territory (CCI) may eventually retrace all the way back to the early March low at 94.54.

US DOLLAR BASKET (DXY) DAILY PRICE CHART (JANUARY – JULY 15, 2020)

While ongoing US dollar weakness is one of the main drivers of USD/CAD, the technical set-up suggest another notable move is nearing. Current price action is in the middle of a cluster of indicators and also threatens to break back below the downtrend started in mid-March. USD/CAD is battling all three moving averages with a bearish 50-dma/200-dma cross likely to be formed soon. The 61.8% Fibonacci retracement level is just 20 pips above the current quote and, along with the 50-dma, may act as a barrier to any short-term upside. Today’s BoC policy announcement will drive the next move, but the chart set-up suggests further downside, especially if the pair close and re-open below the March trendline. Recent low prints around 1.3484 and 1.3490 are likely the next short-term support levels.

USD/CAD DAILY PRICE CHART (JANUARY – JULY 15, 2020)

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