The Canadian dollar posted sharp gains last week, as USD/CAD fell to its lowest level since mid-March. There are seven releases in the upcoming week, including the BoC rate decision. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.

In Canada, building permits recorded a second sharp decline in as many months, with a reading of -17.1% in April. The economy tanked in March, plunging by 7.2%. Still, this was stronger than the estimate of a 9.0% slide. Inflation has also headed south, as the Raw Materials Price Index fell 13.4% in April, after a drop of 15.6% beforehand.

In the U.S., consumer confidence improved in May, as the CB consumer index came in at 86.6, up from 85.7 a month earlier. First-quarter GDP was revised downwards to -5.0%, compared to -4.8% in the initial estimate. Durable goods plunged in April, with the headline figure falling by 17.2% and the core reading falling by 7.2%.

Unemployment claims continue to fall, with 2.12 million new claims last week. This was slightly higher than the forecast of 2.10 million, and raises the total during COVID-19 to a staggering 41 million.

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

1. Manufacturing PMI: Monday, 13:30. Markit’s manufacturing purchasing managers’ index for Canada has shown a steep slide. Back in February, the index was at 51.8, indicative of slight expansion. However, the index has slowed since then and came in at 33.0 in May, which shows significant contraction. Will the downturn continue?
2. Labor Productivity: Friday, 12:30. Productivity growth is problematic in many developed economies. Canada’s figures dropped by 0.1% in Q4, after a gain of 0.2% beforehand. We now await the Q1 data.
3. BoC Rate Decision: Wednesday, 14:00. The Bank of Canada has kept rates close to zero, as the economy grapples with the financial crisis. Policymakers are expected to maintain the current rate of 0.25% at the upcoming meeting.
4. Trade Balance: Thursday, 12:30. Canada suffers from chronic trade deficits. In February, the deficit widened to C$1.4 billion, up from a deficit of C$1.0 billion beforehand. Still, this easily beat the forecast of C$-2.5 billion. The March data is next.
5. Employment Report: Friday, 12:30. Job losses have hit staggering levels – the economy shed some 1.99 million jobs in April, reflective of poor economic conditions due to COVID-19. However, this figure was far better than the estimate of a loss of 4.0 million jobs. Another huge decline is expected in May. The unemployment rate soared to 13.8% in April, up from 7.8% a month earlier. Another double-digit reading is expected for May.
6. Ivey PMI: Friday, 14:00. The Ivey PMI is a useful gauge of economic activity. The index continues to lose ground, falling to 22.8 in April. This was down from 26.0 beforehand. Will the downtrend continue in May?

USD/CAD Technical Analysis

Technical lines from top to bottom: 

• With USD/CAD recording sharp losses, we start at lower levels.
• 1.4159 has been a resistance line since the first week in May. 1.4019 is next.
• 1.39 has some breathing room in resistance following sharp losses by USD/CAD last week.
• 1.3757 is an immediate support level. It could be tested early next week.
• 1.3661 has held in support since March.
• 1.3550 is next.
• 1.3420 is the final support level for now.

I remain bullish on USD/CAD

The outlook for the Canadian economy remains weak. GDP plunged 7.2% in Q1 and economic activity remains at low levels. This does not bode well for the Canadian dollar.