USD/CAD Daily Price Forecast – USD/CAD Pares Losses Post BOJ Update

The USDCAD pair which saw steady decline on Monday following US Greenback’s weakness is now trading at 1.3047 up 0.08% erasing majority of loss from yesterday’s trading session. This recovery in US Greenback’s comes after update from Bank of Japan pledged to keep interest rates “very low” for the time being. BOJ took measures to make its massive stimulus programme more flexible, reflecting its forecast that it would take time for inflation to hit its 2% target. This announcement provided some comfort to bond investors as the policy tweaks didn’t appear to show any inclination from the BOJ to make a radical shift from its accommodative stance. In response, yields on 10-year Japanese government bonds fell 3 basis points to pull away from a 1-1/2 year high of 0.11% while those on 40-year bonds slid nearly 9 basis points. The move in JGBs pushed 10-year Treasury yields lower too all of which helped both US Bonds and Greenback recover lost ground from previous trading sessions.

USDCAD Trying to Rebound

Moving forward, investors are now waiting for updates from US Fed rate decision meeting scheduled tomorrow and Canadian GDP data which is scheduled to release during North American market hours today. Canadian market will also see Raw Materials Price Index and Industrial Product Price Index data both of which have dovish forecasts but are expected to have no major impact on Loonies’ momentum. Meanwhile Crude Oil – the commodity which backs Canadian Loonie and holds great influence over Loonie is seeing bearish price action on Tuesday as a Reuters survey showed OPEC output rose in July to its highest for 2018. According to the survey, the OPEC increased production of 70,000 barrels per day (bpd) to 32.64 million bpd in July, the most this year. Moreover, easing US-Iran geopolitical tensions, after the US President Trump agreed to meet Iran’s President Rouhani without any preconditions, combined with a broadly firmer US dollar also added to the weight on the commodity.

Moving forward this week, there is no major Canadian macro calendar update but great deal of volatility is expected to come from US Greenback which has releases scheduled across the week. When looking at the pair from technical perspective, The USD/CAD one-month 25 delta risk reversals is sidelined at 0.025 since Friday – the lowest level since April 19, having hit a high of 0.30 two weeks ago. The decline from 0.30 to 0.025 indicates a falling implied volatility premium or falling demand for CAD puts. The data add credence to USD/CAD’s recent drop from 1.3386 to 1.30. The risk reversals risk turning negative (higher implied volatility premium for CAD calls) if the USD/CAD pair finds acceptance below the psychological mark of 1.30.