Market Analysis – USDCAD
When looking at the longer term, the Canadian Dollar continues to trade in an uptrend, holding near three-year highs and receiving support from positive economic statistics, but the USDCAD is currently increasing during this morning’s Asian Session. In addition to positive price movements, in general for the Canadian Dollar, the instrument has also been assisted by the lack of demand for the US Dollar. The US Dollar recorded three consecutive weeks of depreciation and last week was only saved from recording a fourth week after a significant correction on Friday.
Lately investors have been more inclined to sell the US Dollar, or simply avoid “long” positions against the background of the uncertain position of the US Federal Reserve regarding the near-term prospects for monetary tightening. Against this background, the Bank of Canada looks especially advantageous, having announced a possible tightening of monetary policy from next year. It should be noted that analysts have mentioned generally that this is also likely to be the case with the Federal Reserve, though the central bank has not yet actually indicated this verbally which has frustrated investors.
Investors have also been focused lately on the comments of US Treasury Secretary, Janet Yellen, and the publication of April business activity data. Last week, in an interview with NBC, Yellen again tried to reassure investors who fear inflation will rise as a result of the launch of new American economy support programs by the administration of President Joe Biden. She pointed out that financial injections will not be instantaneous, but will stretch for 8-10 years, which will reduce the risk of price increases. At the same time, regulators will closely monitor inflation and, if necessary, will take containment measures. Cecilia Rouse, Chair of the National Economic Council at the White House, also noted that the rise in inflation can only be temporary.
When looking at Canada’s recent economic figures we can clearly see partially what has been fueling the bearish movement of the USDCAD. When looking at the inflation figures we can see that the rate has reached its highest level since the start of the current financial and health situation. Inflation has currently reached a figure of 2.2% and has not recorded figures below zero since last May. Canada’s employment figures have also been improving this year so far and traders are eager to see if April’s figures show the economic recovery is continuing. The unemployment rate is currently at 7.5%, much lower than the 9.4% which was recorded in the first month of the year.
The US currency is strengthening today as the US Dollar Index has increased by 0.22%. However, it should be noted that the currency is still at a lower price when compared to the previous two trading days. When looking at the Canadian Dollar we can see that the asset is generally declining against most of its competitors such as the Dollar, Euro and Pound, though is seeing positive movement against the Yen. When looking at the asset itself, we can see that the price movement has formed a strong resistance and support level since last Thursday which traders are also monitoring.
This week, investors will focus on the publication of the Canadian labor market report for April, which will take place on Friday as well as speeches made by the Central Bank late on Thursday. On the same day, the US will also submit its data, so trading activity at the end of the week is likely to remain high. At the same time, it should be noted that the forecasts for the American report are much more favorable at the moment. These scheduled events are likely to be the main market price drivers throughout the week.
Resistance levels: 1.2300, 1.2353, 1.2400, 1.2446.
Support levels: 1.2245, 1.2200, 1.2129.