Saturday, June 10, 2017 6:29 PM EDT
Fundamental Forecast for CAD: Bearish
- For the past two weeks, the Canadian Dollar has been easing back against its US counterpart and there’s little reason to expect that to change.
- While oil prices are weak and the Bank of Canada appears in no hurry to raise interest rates, there’s little reason to buy it.
Despite some strength in the Canadian Dollar on Friday, USD/CAD has been climbing gently since May 15, lifted by a combination of weak oil prices and the realization that the Bank of Canada is still in no mood to increase interest rates anytime soon.
In fact, as the chart below shows, USD/CAD is rising in a channel between resistance at the 50-day moving average and support at the 100-day moving average, although it remains well below its early-May highs.
Chart: USD/CAD Daily Timeframe (2017 to Date)
Chart by IG
As usual, the weakness of the Canadian currency has gone hand-in-hand with a slide in the oil price on the continuing glut that has outweighed any concerns about supplies due to the spat between Qatar and its Arab neighbors including Saudi Arabia and Egypt.
As for the Canadian economy, news of a bounce in employment has suggested to some analysts that the Bank of Canada should raise its benchmark interest rate sooner rather than later but that seems unlikely given the current weakness of hours worked and wage growth. There is little economic data on the calendar in the week to come, with April manufacturing sales on Thursday the only statistic of note.
True, IG client sentiment figures point to a stronger USD/CAD-bearish contrarian trading bias but for now at least it’s quite possible that the modest uptrend will continue for a while.
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