USD/CAD. Canadian dollar worthily resists US dollar hegemony

Trading 09 juil 2019 Donner votre avis

The Canadian dollar paired with the US currency is held within the 30th figure, despite the strengthening of the greenback throughout the market. Perhaps the USD/CAD pair is the only one among the main dollar pairs where the US dollar could not demonstrate clear dominance after the release of Friday's data. Although in the information space, American Nonfarms obscured Canadian labor market data, the loonie did not ignore them at all. Despite certain contradictory nuances, "Canadian Nonfarms" made it possible for USD/CAD traders to hope that the Bank of Canada will remain in a wait-and-see position, whose July meeting will take place on Wednesday. However, first things first.

At first glance, data on the labor market in Canada are disappointing. Indeed, some components of the indicator were worse than expected, not reaching the predicted values. For example, analysts expected an increase in the number of people employed by 10 thousand, while real numbers showed negative dynamics: in the first month of summer, the number of jobs decreased by 2 thousand. The unemployment rate also increased, however, in this case, the result coincided with the expectations of analysts. Yes, and the increase was low - up to 5.5% from the previous value of 5.4%. But on the other hand, there are positive moments. Firstly, the number of full-time employees has significantly increased, while the part-time employment rate has decreased for the first time since April of this year. Established posts suggest higher salaries and social security, having a beneficial effect on Canadians' consumer activity and ultimately on inflation in the country. In addition, according to the June data, wage growth has accelerated. This fact can also positively affect inflationary dynamics.



Here it is worth recalling that the growth rate of Canadian inflation increased significantly in May. Indicators came out in the "green zone", exceeding the forecast values. In particular, the consumer price index excluding energy and food prices rose to 2.1% - this is the strongest growth rate in the last 7 years. Positive dynamics was demonstrated by all structural components of the most important indicator for the Canadian regulator. It is worth noting that the real figures have exceeded even the wildest forecasts of the central bank - at the beginning of the year, the Bank of Canada raised its forecast for the growth of consumer inflation from 1.7% to 1.9%, which is below the above-mentioned mark of 2.1%.

However, not all indicators go in such a positive way - there are also quite alarming signals. In particular, the indicator of retail sales in Canada shows rather sluggish growth (after a significant jump in the previous month), and GDP growth in Canada, according to analysts of TD Securities, is likely to slow down to 0.3% in monthly terms after a previous growth to 0.5% .

Such contradictory dynamics does not allow USD/CAD bears to break through the psychologically-important mark of 1.30 and go into the region of 29-28 figures. In this context, the key event of the week will be the Bank of Canada meeting, which will be held on July 10. According to most experts, the Canadian regulator will maintain the status quo at this meeting and is unlikely to announce easing of monetary policy. Strong data on inflation growth, as well as relatively good labor market indicators allow the central bank to pause and not take hasty actions.

At the last meeting, the Bank of Canada announced an optimistic assessment of current events, and the slowdown in the economy of Poloz called it a "temporary phenomenon." If at the July meeting he repeats a similar position, and Jerome Powell, in turn, does not strengthen the position of the American currency with his rhetoric, the USD/CAD pair will be able to enter the 29th figure - right up to the resistance level of 1.2950 (the lower border of the Kumo cloud on weekly chart). But if Stephen Poloz softens the tone of his rhetoric and focuses attention on the weaknesses of the Canadian economy, the loonie will return to the boundaries of the 32nd figure, that is, the Bollinger Bands midline on the daily chart.


But in my opinion, the Bank of Canada would rather prefer the first scenario. The Canadian economy is in good shape, despite certain nuances of a negative nature, so members of the central bank do not need to brace traders if it softens monetary policy - especially before the July meeting of the US regulator, which, in turn, will decide the fate of the Fed interest rate. Thus, with high probability we can assume that the Canadian central bank will take a wait-and-see position, allowing the loonie to test the 29th figure. But here it should be noted that this scenario will be relevant only if the head of the Fed does not provoke another rally of the US currency. After the release of sufficiently strong US Nonfarms, the market began to doubt that the Fed would lower the rate at the July meeting. If Powell confirms these doubts in Congress, the US dollar will rise in price across the entire market, and the USD/CAD bears will have to postpone the assault on the 29th figure until better times.

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