USD/CAD Fundamental Analysis – week of August 14, 2017

The USDCAD had a mixed week as the price moved higher during the middle of the week and then corrected lower when bad CPI data from the US came out. The recovery in the early part of the week was broadly based on the general recovery in the dollar strength across the board and also due to the weakness in the oil prices which have not been able to push ahead through the $50 mark for the past week. This weakness in the oil prices has also made the CAD trade weakly and made the upmove in the USDCAD easier during the first half of the week.

USDCAD in Corrective Mode

We had been mentioning in our forecasts that the region around 1.24 was likely to serve as good support and that we are likely to see a bounce from there and this exact price action followed as the pair, after a fall of over 1000 pips in a matter of weeks, had since bounced and risen by over 300 pips. The market is still not sure whether the move up is a correction in the downtrend or whether it is a full fledged reversal but we believe that this is only a correction.

The BOC has just started its rate hike policy and the data from Canada ever since the first hike has continued to be strong. This could mean that the BOC is likely to hike more in the coming months which should support the CAD. Also, the dip in the oil prices is also likely to be temporary as the cut in production and drop in inventory will take effect pretty soon and push the prices higher. Also, the dollar is still not out of the woods as yet and with the economic data from the US continuing to be choppy, we are going to see a delay in the next rate hike from the Fed.

Looking ahead to the coming week, we have the retail sales data from both the US and Canada in the coming week apart from the FOMC meeting minutes as well. This guarantees a lot of volatility in the pair with 1.2660 on the bottom and 1.2750 on the top being key regions of support and resistance respectively.