The pair is likely to have a small bounce which is likely to be sold into in the short term
The USDCAD rose higher during the course of trading yesterday as the dollar steadied itself across the board. The pair continues to trade below the 1.25 region and as long as that region is not broken through again in a pretty quick manner, the dollar bulls in this pair are likely to face more pain in the short term.
But unlike in the other currency pairs, which have to deal only with dollar strength and weakness at this point of time, as the currencies themselves are pretty much steady, here, in this pair, the traders have to deal with a combination of dollar weakness and CAD strength as well. The CAD has been well supported by the strong oil prices which continue to trade in strong manner and lend strength to the Canadian economy and hence the CAD.
There are also signs that the BOC might hike the rates next month. They surprised the markets with a rate hike a few months back and they are known to be hawks and do the unexpected unlike the other central banks which drag their feet on any decision and keep the markets guessing. Though the BOC governow Poloz made it clear that he does not have a timeline for the next rate hike, the improving data from Canada, with a strong employment report being the latest, has led to belief that they would hike rates next month and hence any bounce in this pair is likely to be sold into.
Looking ahead to the rest of the day, we do not have any major news from either the US or Canada for the day and hence expect a small bounce in the pair as the dollar begins to steady itself. But this is likely to be sold into quite soon.
Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.