USD to CAD Price Forecast: Boosted by Chinese Trade Worries, Rising US Yields

Highlights

• U.S. 10-year Treasury yields rise to 4.0442%.
• U.S. inflation may rise to 3.3%.
• Chinese imports down, raising economic concerns, sending investors into US Dollar. 

USD to CAD Rises on Weaker Chinese Trade Data and Higher U.S. Yields

The U.S. Dollar (USD) strengthened against the Canadian Dollar (CAD) as concerns grew over weakening Chinese trade data and global investors await key inflation readings. With the USD to CAD testing its highest levels since June 7, here’s what traders should know:

China’s Troubling Trade Numbers

Chinese imports contracted by 12.4% in July, a steeper drop than the anticipated 5%. Exports also decreased by 14.5%, deeper than the 12.5% forecast. These figures have raised questions over China’s economic resilience, especially as global markets await inflation figures from both China and the U.S., due for release this week.

U.S. Treasury Yields Climb

U.S. 10-year Treasury yields rose to 4.0442%, providing a lift for the U.S. Dollar. This increase in yields, hinting at expectations of future Federal Reserve rate hikes, has widened the interest rate differential, making the USD more attractive than the CAD. Federal Reserve Governor, Michelle Bowman, emphasized the need for more rate hikes to control inflation, suggesting close monitoring of inflationary indicators for future policy decisions.

July’s U.S. Jobs Report

The report, released Friday, indicated a growth of 187,000 nonfarm payrolls, falling short of the anticipated 200,000. However, average hourly earnings rose by 0.4% monthly and 4.4% annually, hinting at a resilient labor market despite the Federal Reserve’s consistent interest rate hikes to control inflation.

Inflation Expectations

U.S. inflation is anticipated to rise slightly to 3.3% annually in July, while China’s consumer price index is predicted to decline by 0.4% year-on-year. This disparity between the world’s two largest economies will be crucial in influencing financial decisions in the coming months.

Short-Term Forecast:  Bullish

As traders scrutinize the forthcoming consumer and producer price index reports, they will gain insights into the efficacy of the Federal Reserve’s measures and potential next steps. On the other hand, China’s soft economy and low inflation, due to slowed growth, fuel debates about possible economic stimuli. While the efficacy of China’s potential economic stimulus remains uncertain, global markets remain on edge, weighing economic downturns against hopes of reviving growth.

The recent data, combined with upcoming inflation readings, leans bullish for the USD to CAD in the short term. As investors grapple with global uncertainties, the relative strength and stability of the U.S. economy position the USD as a preferred asset. However, traders should remain vigilant, given the dynamic nature of forex markets and external factors that can swiftly influence currency valuations.

Technical Analysis

The current 4-hour price of the USD to CAD stands at 1.3424, up from the prior 4-hour price of 1.3392. This suggests an uptrend. When assessing the moving averages, the currency pair is trading above both the 200-4H moving average of 1.3234 and the 50-4H moving average of 1.3294, indicating bullish momentum.

The 14-4H RSI, registering at 67.19, is nearing the overbought threshold, hinting at strong upward momentum, but caution is advised as the value approaches 70.

Lastly, the current price is edging towards the main resistance zone of 1.3406 to 1.3450, which if breached, could propel further bullishness. Overall, the market sentiment for USD to CAD appears bullish in the short term.