USD/CAD Fundamental Analysis – week of June 26, 2017

We had been mentioning since the beginning of last week that with the USDCAD prices suffering a large fall in the previous week, due to the strengthening of the CAD on hopes of a rate hike, there was a very good possibility of a corrective bounce in that week and that the bounce would not last too long as it would be sold into.

USDCAD In Clear Downtrend

This is what happened during the course of last week as we saw the USDCAD pair recover from its lows around the 1.32 region and move higher. The low oil prices had been largely ignored during the previous week as the rate hike hopes from Canada, fanned by the BOC and improving economic data, had taken the focus away from the oil prices and this had pushed the pair towards the 1.32 region. We had warned of a corrective bounce towards 1.33 and that happened during the middle of the week as the oil prices crashed lower through its November lows and this was not good for the CAD. This pushed the USDCAD prices towards 1.33.

But this bounce was met with a lot of selling between 1.3300 and 1.3330 and then came along the retail sales data from Canada. Once again, one more data point from Canada came in stronger than expected and this was enough to raise hopes for a rate hike again and this pushed the pair back lower towards the 1.32 region. But the weak oil prices continued to loom over the CAD and with the oil prices set to become weaker in the short term, we could see some of that pressure showing up in the CAD. The downtrend in this pair is clearly set for the short and medium term and it is only a matter of time before we move towards 1.31 and further towards 1.30.

Looking ahead to the coming week, we have the GDP data from both the US and Canada and both these data points will be watched closely. The news in recent times from US has been weak and the data from Canada has been strong and so the market will be seeing whether this trend continues.