USD/CAD Forecast July 2-6 – Crude CAD Comeback For Now

Dollar/CAD changed course and fell sharply as oil prices surged and trade tensions fell. Can it last? The jobs report is the main event on the Canadian agenda, but trade concerns remain central. Here are the highlights and an updated technical analysis for USD/CAD.

The price of oil continued its upward march. OPEC’s confusing decision and Trump’s attempt to ban all Iranian crude exports were joined by a sharp drop in US oil inventories. Petrol prices jumped and the Canadian dollar was bid. More importantly, Trump went for a softer approach on curbing Chinese investments in the US, thus allowing markets to recover. The ensuing risk-off sentiment helped the C$. To top it off, Canadian GDP beat expectations with 0.1% in April, ending the week on a positive note. Nevertheless, Canada announced the imposition of retaliatory tariffs against the US over the weekend. The announcement, made by Chrystia Freeland, may trigger countermeasures from the US.

Updates:

USD/CAD daily graph with support and resistance lines on it. Click to enlarge:

  1. Manufacturing PMI: Tuesday, 13:30. Markit’s purchasing managers’ index for the manufacturing sector stood at 56.2 points back in May. A similar number may be seen now. A drop, due to trade concerns, may weigh on the loonie.
  2. US tariffs on China come into effect: Friday. The US announced tariffs on Chinese goods worth $50 billion a few weeks ago, but they will come into effect on July 6th. China announced it would retaliate. The time between the announcement and the actual imposition was seen as allowing for negotiations to proceed. However, there have been no meaningful movements in defusing the situation. If a last-minute deal is struck, a risk-on atmosphere could sink the yen and also weigh on the US Dollar, especially against commodity currencies such as the Canadian Dollar. If mutual tariffs are imposed and the US announces a counter-retaliation to Chinese tariffs, the greenback could suffer and the loonie could take advantage of it.
  3. Jobs report Friday, 12:30. Canada suffered two consecutive months of falls in jobs, with a loss of 7.5K positions in May. A rebound is likely now. The unemployment is projected to remain at 5.8%. It is important to note that wage growth is becoming more important in Canada. The 3.9% y/y rise in May supported the loonie despite the disappointing drop in jobs.
  4. Trade Balance: Friday, 12:30. Canada had a trade balance deficit of 1.9 billion in April, a narrower than expected number. Canada could see a broader deficit in May. The US tariffs came into effect only in June and will not be reflected in the current figures.
  5. Ivey PMI: Friday, 14:00. The Richard Ivey School of Business has reported an impressive score in its forward-looking survey for May: 62.5 points. A small drop to 63.2 is expected now, but the growing row with the US could result in a worse outcome.
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