The Canadian dollar took a beating against the ultra-strong Japanese yen last week, but when it comes to USD/CAD, the pair’s tight consolidation suggests that we could see a breakout within the next week.
Canadian Dollar Consolidation May Yield Break vs. US Dollar This Week
Fundamental Forecast for Canadian Dollar: Neutral
- Canadian business activity improved in June as Ivey PMI hit a 9-month high
- Canadian housing starts surged 8 percent in June
- Canadian employment fell less than expected in June, but the unemployment rate still hit a 9-year high
The Canadian dollar took a beating against the ultra-strong Japanese yen last week, but when it comes to USD/CAD, the pair’s tight consolidation suggests that we could see a breakout within the next week. Looking at the attached 120 minute chart, USD/CAD appears to have formed a head and shoulders pattern, and from a longer-term perspective, a rising trendline clearly comes into play at 1.1575/1.1600, and this level essentially serves as a “line in the sand” for the next week. Traders should also keep the status of oil in mind, as any sharp moves in the commodity could trigger equally strong moves in the correlated Canadian dollar.
Thus far, the Canadian dollar hasn’t shown much of a sustained reaction to surprisingly strong economic data, as the net employment change, housing starts, and Ivey PMI were all better than expected last week. However, inflation reports could have a bigger impact the Canadian dollar as the news could impact future decisions by the Bank of Canada. Headline CPI for June is projected to fall to an annual rate of -0.3 percent, while the BOC’s core measure is projected to hold fairly steady at 1.9 percent, down from 2.0 percent. Such results would suggest that any price declines are due purely to falling commodity costs, and as long as the core measures don’t fall sharply, the Canadian dollar shouldn’t react too strongly. However, if broader price pressures start to fall more steeply, concerns about deflation may arise and weigh on the currency.
