USDCAD is moving in a symmetrical triangle and currently consolidating between the support resistance zone.
The Bank of Canada is likely to raise interest rates by 25 basis points today, primarily driven by robust GDP data released last week. Additionally, the recent reduction in Saudi Arabian oil production has caused oil prices to increase. Furthermore, positive figures in wage prices and employment changes have influenced the Bank of Canada’s decision to potentially implement another 25 basis point hike during todays meeting.
Boc Monetary Policy Decision and Canadian employment data, which could potentially create further market volatility. Additionally, the pair is influenced by the price movements of Canada’s main export, Crude Oil, as well as the strength of the US Dollar. The article also discusses the recent US jobs report for May and its surprising outcome, which has added to the market’s sentiment. Furthermore, it explores the implications of the geopolitical concerns surrounding China, Russia, Ukraine, and the US, along with the US debt-ceiling extension and expectations of fewer rate hikes from major banks. Lastly, the article highlights the cautious approach of global rating agencies towards the US financial market credibility.
Factors Influencing USDCAD Moves
Crude Oil Prices and US Dollar Strength
1.1 Firmer prices of Crude Oil: WTI crude oil displays a three-day uptrend near $72.50, despite recent intraday gains being pared.
EURCAD moving towards the horizontal support area in a minor descending channel path.
The market observes a reversal from a one-week high, primarily driven by the US Dollar’s strength. The week started with a gap-up due to headlines suggesting further reductions in oil output from major producers.
1.2 Strength of the US Dollar: The US Dollar Index (DXY) extends its post-NFP run-up to 104.15. This is fueled by the market’s sour sentiment and firmer US Treasury bond yields, ahead of key US economic data, including the ISM Services PMI and Factory Orders. The Federal Reserve’s policymakers are stipulated against making any public comments ahead of the Federal Open Market Committee next week, which supports the bullish sentiment for the US Dollar.
US Jobs Report for May
2.1 Nonfarm Payrolls: The May jobs report surprises the market with a jump in the headline Nonfarm Payrolls, recording 339K versus the expected 190K and the previous month’s revised figure of 294K.
GBPCAD breaks the rising wedge pattern and consolidating towards the minor support area.
2.2 Unemployment Rate: Despite the increase in Nonfarm Payrolls, the Unemployment Rate rises to 3.7% from the previous 3.4% and exceeds the market’s forecast of 3.5%.
2.3 Wage Growth and Labor Force Participation: The report indicates a decrease in Average Hourly Earnings, while the Labor Force Participation Rate remains unchanged. These factors contribute to the market’s sour sentiment, fueled by hawkish Fed bets and geopolitical concerns.
Geopolitical Concerns and Market Sentiment
3.1 Geopolitical concerns: Ongoing tensions between China, Russia, Ukraine, and the US have created unease among traders, influencing the USDCAD pair. These concerns, combined with the US debt-ceiling extension, impact the Loonie’s value.
CADCHF at the lower high area of the descending channel.
3.2 Expectations of lesser rate hikes: Hopes for fewer rate hikes from major banks add pressure on the Loonie. Additionally, global rating agencies’ cautious stance towards the US financial market credibility affects the US Dollar’s performance, despite the positive price movement on Friday.
Key Events: BoC Decision and Canadian Jobs Report
4.1 Bank of Canada Monetary Policy Decision: Although the Canadian central bank is not expected to change rates, any surprises in the decision will have a significant impact on the USDCAD pair, especially after recent positive data from Canada.
4.2 Canadian Employment Data: The release of the Canadian jobs report on Friday will be closely monitored by traders. Strong data could strengthen the Loonie, while weak figures could increase anxiety among traders.
Outlook and Speculation
Speculation on Rate Hike
5.1 Momentum in the Canadian economy: Speculation about an impending rate hike stems from the momentum observed in the Canadian economy. However, economists do not expect the Bank of Canada to raise rates during this week’s meeting.
AUDCAD at the lower high area of the descending channel and retesting the horizontal broken support area.
5.2 Bank of Canada’s rate-hiking cycle: The Bank of Canada paused its rate-hiking cycle earlier this year to assess the effects of previous hikes. Although some governing council members discussed raising rates in April, the central bank opted to wait for more data.
5.3 Concerns about inflation: The Bank of Canada is concerned about the sustainability of the low unemployment rate and wage growth, which could make fighting inflation more challenging.
5.4 Inflation indicators: Recent inflation data shows slight signs of strength, with the annual rate of consumer-price-index inflation ticking up to 4.4% in April. Core measures of inflation also suggest that inflation may not yet be fully under control.
Conclusion
The USDCAD pair is currently experiencing anxiety among Loonie traders, influenced by various factors such as Crude Oil prices, the strength of the US Dollar, the US jobs report for May, geopolitical concerns, and upcoming key events like the Bank of Canada Monetary Policy Decision and Canadian employment data. While the momentum in the Canadian economy has sparked speculation about a rate hike, economists believe that the Bank of Canada will not make any changes this week. The central bank will likely take more time to assess inflation pressures and the effects of previous rate hikes before deciding on future moves. Traders and investors will closely monitor the central bank’s communication and its acknowledgment of recent economic data to gauge the possibility of a rate hike in the near future.
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