- Canadian dollar retained its gains despite a general USD recovery.
- WTI remains stalled below $43, Canadian economic data middling.
- Tight technical bands above and below restrict movement.
- Currency markets awaiting updated Canadian August data.
The USD/CAD kept most of its weekly gains as a mild dollar recovery in the second half of the week blunted the advance of the euro and sterling. Despite slightly weaker than expected June Canadian economic data and West Texas intermediate unmoving below $43.00 the USD/CAD fell as low as 1.3133 on Tuesday and closed on Friday at 1.3187. In contrast the euro reached 1.1966 on Tuesday but closed the week 1.1790 and the sterling touched 1.3267 on Wednesday but finished at 1.3093.
Technical considerations surrounding the current USD/CAD level have kept movement limited, in the absence of a fundamental change in the economic picture between the US and Canada. From July 2019 to March 2020 the Dollar Canada ranged from 1.3050 to 1.3350. The long residence in that space left numerous support and resistance limits, which flip from one to the other as the USD/CAD has fallen but keep their position.
West Texas Intermediate has not been above $43 since the panic collapse in oil prices in early March in spite of the ebbing of the pandemic and the advancing recovery in the global economy.
Market were awaiting more up to date information on the Canadian economy as trading moves into the second half of the third quarter.
Canadian wholesale sales jumped 18.5% in June, almost double the 10% forecast and far more than May 5.7% increase. The consumer price index in July rose 0.1% on the year, much less than the 0.5% prediction and June’s 0.7% gain.
Retail sales rose 23.7% in June and 18.7% in May, far outstripping the combined 34.9% loss in March and April. Markit’s preliminary PMI for August will be released on September 1 followed by employment statistics and Ivey PMI on the 4th
The dollar weakness over the past month on the assumption that the US recovery has slowed under assault from rising Covid rates. The statistical support for this view is thin largely based on initial jobless claims which rose 10% in the two middle weeks of July, fell 33% in the subsequent two weeks and jumped back 12% to 1.106 million in the latest (August 14) week.
Other US July data has been relatively good. Payrolls added 1.763 million jobs, more than forecast bringing the rehired to 9.23 million, 42% of the March and April losses. Purchasing managers’ indexes were strong in manufacturing and services with the latter new orders index at an all-time record. Employment indexes were the exception with both services and manufacturing remaining well in contraction with little motion higher.
Existing home sales soared a record 24.7% in July, outstripping the 14.7% forecast and June’s strong 20.2% gain. The 5.86 million annualized selling rate is the highest since the pre-financial crash housing bubble. Sales were aided by some of the cheapest mortgage rates in history as the Federal Reserve bond purchase program part of its Covid relief package forces commercial yields lower.
The first look at August’s numbers were good. IHS Markit’s purchasing managers’ index was better than forecast with the manufacturing PMI at 53.6 on a 51.9 estimate and July’s 50.9 score. Services registered 54.8 on a 51 forecast and the July reading of 50.
The US labor economy is the crux of the recovery. Until improvement is unambiguous and advancing the dollar is unlikely to stage a convincing recovery.
The resiliency of the Canadian dollar is unlikely to last if the recovery in the USD gains strength.
Much depends on whether US data changes the perception that the American economy is slowing. The jump in initial claims in the latest week is one indication that it may be, on the other hand the Markit PMI figures for August relate gathering activity. It is even possible, perhaps likely, that both picture are accurate, that different areas and sectors of the economy are recovering at different speeds and may occasionally head in different directions.
A rise in oil prices would aid the loonie but its immediate fate will be determined by progress of the US economy.
Canada statistics August 17-August 21
US statistics August 17-August 21
Canada statistics August 24-August 28
US statistics August 24-August 28
USD/CAD technical outlook
The relative strength index is approaching oversold at 36.03 after almost two months of decline in USD/CAD is an indication that the odds of a recovery are rising. The moving averages are all above the market with the 21-day at 1.3302, the 100-day at 1.3677 and the 200-day ar 1.3530. Only the 21-day has current relevance mid-way between two resistance lines.
Resistance: 1.3230; 1.3270; 1.3325; 1.3375; 1.3425
Support: 1.3170; 1.3080; 1.3030; 1.2960
USD/CAD sentiment poll