Canadian Dollar Talking Points

USD/CAD trades to a recent month-to-month low (1.2789) because it carves the collection of decrease highs and lows following the Federal Reserve rate of interest determination, and recent knowledge prints popping out of the US and Canada could affect the near-term outlook for the alternate price amid the continued shift in financial coverage.

Fundamental Forecast for Canadian Dollar: Neutral

USD/CAD depreciates for the second week because the US Gross Domestic Product (GDP) report reveals the US financial system in a technical recession, and the weakening outlook for development could proceed to supply headwinds for the Greenback because it places strain on the Federal Open Market Committee (FOMC) to winddown its mountaineering cycle.

Nevertheless, the replace to the Non-Farm Payroll (NFP) report could encourage the FOMC to ship one other 75bp price hike at its subsequent rate of interest determination on September because the financial system is anticipated so as to add 250K jobs in July, and a constructive growth could curb the latest decline in USD/CAD because it raises the Fed’s scope to implement a extremely restrictive coverage.

At the identical time a rebound in Canada Employment could affect USD/CAD because the Bank of Canada (BoC) decides to “front-load the path to higher interest rates,” and an enchancment in the labor market could result in a kneejerk response in the alternate price with each central banks on monitor to additional alter financial coverage over the approaching months.

Until then, USD/CAD could battle to carry its floor because it carves a collection of decrease highs and lows, however one other sudden contraction in Canada Employment could produce a bearish response in the Canadian Dollar because it curbs hypothesis for an additional 100bp BoC price hike.

With that stated, USD/CAD could proceed to depreciate because it trades to recent month-to-month lows on the finish of July, however recent knowledge prints popping out of the US and Canada could sway the near-term outlook for the alternate price amid the continued shift in financial coverage.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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