USD/CAD Daily Forecast – Canadian Dollar Rebounds Together With OilBargain hunters step in to purchase Canadian dollar as oil gets off its recent lows.
Yesterday, Canadian dollar faced heavy selling pressure as oil plunged to levels not seen since 2003. Today, oil is getting support from bargain hunters as well as from the U.S. government, which decided to purchase 30 million barrels of oil for strategic reserve.
On the fundamental front, Canada reported that New Housing Price Index increased 0.4% month-over-month and 0.6% year-over-year. Analysts were calling for the index to be little changed, so this was a positive surprise which highlighted the strength of the housing market before the real impacts of the coronavirus started to emerge.
The U.S. today reported that inital claims increased to 281,000 compared to expectations of an increase of 220,000. This means that coronavirus-related measures are already starting to impact real life. I expect that the initial claims number which will be reported next week will look much worse.
Another fundamental index which has already suffered from the coronavirus situation was the Philadelphia Fed Manufacturing Index, which showed a negative reading of -12.7 compared to consensus of +10.
The fundamental data keeps getting worse, and I can safely say that we haven’t yet seen the true damage done by the virus containment measures. In the current situation, the bad data is positive for the U.S. dollar which is the main safe haven asset in the world right now.
However, the USD/CAD dynamics are also impacted by the changes in oil prices. Today’s rebound in oil and the corresponding strength in the Canadian dollar show that both oil and the Canadian currency got too stretched to the downside, and bargain hunters were ready to step in.
The upside in USD/CAD was stopped at 1.4667, near the previous high at 1.4650. At this point, the range between 1.4650 and 1.4670 is the new important resistance level.
As a reminder, the previous move into this territory was made back at the beginning of 2016, when USD/CAD reached 1.4690. In my opinion, the pair will need strong catalysts to move past 1.4700 because it will meet serious resistance above 1.4650.
On the support side, USD/CAD has no material levels in the nearby because its run from 1.4000 to 1.4667 took just several days. Thus, traders will have to watch carefully whether the recent low of 1.4420 can hold.