USD / CAD: Focus on Canadian inflation
The Canadian dollar at the end of the week fluttered, stopping in the middle of the 31st figure. Contradictory fundamental factors interrupted the northern movement of USD / CAD, although there are now more factors in favor of weakening the “loonie” than vice versa. There is one more reason for the waiting attitude of traders. Today, the key data on the growth of inflation in Canada will be published. This release can push the pair to one side.
In general, the fundamental background for the Canadian leaves much to be desired. The oil market again shows a decline, the fate of the North American Free Trade Agreement (NAFTA) remains uncertain, and Saudi Arabia has suspended all investments in Canada. This set of fundamental factors led to the growth of the pair USD / CAD from 1.2950 to the current 1.3150. However, yesterday, the northern impulse was stalled, mainly due to a slight weakening of the US dollar.
The US currency suspended its rally due to an unexpected “gap” in the US-China trade conflict. At the end in August, a delegation from China headed by the Deputy Minister of Commerce will arrive in Washington. The parties will sit at the negotiating table, and this dialogue, according to some experts, can end with the de-escalation of the trade war between the countries. At least, such hopes are placed by many market participants on both sides of the Pacific Ocean.
It is noteworthy that the initiators of the meeting were just the Americans, and not the Chinese, it is likely that Trump’s recent statement that he is “ready to go for 500” (that is, to impose all Chinese imports with additional duties worth $ 500 billion) was not perceived enthusiasm in Washington. In any case, this attempt to establish a dialogue goes against the belligerent tweet of the US president to Beijing. Therefore, the market reaction did not wait, despite the fact that such negotiations have repeatedly ended in failure.
All this explains the slowdown in the growth of the pair USD / CAD. In addition, the market leaves no hope for further interest rate increase by the Bank of Canada. Under the conditions of the US-China trade war, in the midst of a serious economic crisis in Turkey, the Canadian regulator may become almost the only Central Bank among the world’s leading countries, which will continue to tighten the terms of monetary policy (except, of course, the US Federal Reserve).
The last strong report on employment was unexpectedly strong, and this fact returned to the market rumors about the “hawkish” intentions of the Bank of Canada. First, in July, overall employment growth was the strongest this year (the number of jobs in Canada increased by 54 thousand last month after increasing by 31 thousand in the previous one); secondly, the rate of growth in employment in the service sector has even been able to update the historical maximum; thirdly, pleasantly surprised and the level of unemployment. This key indicator unexpectedly decreased to 5.8%.
Given such strong data on the labor market, today’s figures on the growth of inflation are extremely important. If Canadian inflation also surprises the market with a strong result, traders will be able to hope for another increase in the interest rate “in spite of everything,” that is, despite all the negative factors of the fundamental background. Otherwise, the growth of the pair USD / CAD will continue, as the focus of the market will shift to external news drivers (the dynamics of quotations of “black gold”, the prospect NAFTA, etc.).
The overall forecast for today’s release is not impressive. In particular, the consumer price index should remain at high levels, but at the level of the previous period. The same can be said about the dynamics of core inflation (to which the Canadian regulator is mainly oriented). According to experts, it will remain at the same level, 1.3%. Given this forecast, even a minimal deviation from the declared figures will provoke strong volatility in the pair, especially if this deviation is in the positive direction.
But the technical side of the Canadian, unfortunately, nothing good shines. The pair is in an upward trend: on the daily chart, the price is gradually matched to the resistance level and shows ambition to break through the upper line of the Bollinger Bands indicator, thus gaining a foothold in the 32nd figure. All lines of the indicator Ichimoku Kinko Hyo are under the price chart and show the strongest bullish signal – “Line Parade”. Oscillators MACD and Stochastic also show an upward direction, being in the oversold area. Thus, the level of resistance is 1.3200, and the support level is 1.3075 (the middle line of the indicator Bollinger Bands on D1).
To summarize, it is worth noting that the Canadian dollar shows remarkable resilience, despite the actual weakening. The decline in oil prices, the uncertainty over the NAFTA and the diplomatic scandal with Saudi Arabia. All these factors exerted (and exert) strong pressure on the Canadian, but its devaluation is limited. This suggests that the market still believes in further tightening of monetary policy by the Bank of Canada, and today’s inflation data may either strengthen the position of bears USD / CAD or finally weaken them.