USD/CAD upside stalls at the 200-day moving average
The steady rebound from recent lows in USD/CAD looks to be potentially rolling over this week. The risk calendar is quiet for the “loonie” though Governor Macklem sent a strong message over the weekend that the Bank of Canada would keep inflation under control. This supports the outlook for the bank to move well ahead of its major economic peers.
Of course, inflation data does feature in the US with releases of both CPI and PPI tomorrow. The former is the key number and is seen pushing to a new cyclical high near 5.9% year-on-year. This would be the highest level since 1990 and comes at a time when the Atlanta Fed GDPNow measure forecasts the economy growing above 8%.
Policymakers will be closely analysing tomorrow’s data to see if there are further signs that inflationary pressures are broadening beyond sectors most sensitive to pandemic-related disruptions such as used cars. Rents and other-related expenses are expected to have risen once again.
In general, the North American economy continues to recover with continued solid gains in job growth. Friday saw significant upward revisions in the US, accompanied by a better-than-expected headline gain amid strong private sector hiring. In Canada, the labour market is clearly making progress with the fifth straight monthly rise and employment back to its pre-pandemic levels. This data supports the idea of earlier rate hikes in Canada suggested by the recent Bank of Canada outcome.
Technically, USD/CAD gains were capped last week by the 200-day simple moving average at 1.2476. This level also tallies with the halfway point of the June to August move at 1.24767. More resistance above here comes in with both the 50-day and 100-day moving averages around 1.2537.
Price action actually formed a “doji” candle on Friday, which signals some indecision after making a new rebound high from the October lows. Underlying trend signals have also been weak with the pair a little soft on intraday charts. This week has seen prices start to move lower with near-term support at 1.2415. The next Fibonacci retracement level (61.8%) sits at 1.23655.
There are no Canadian data releases over the week with Thursday’s Federal holiday in both the US and Canada. That means direction for the loonie will be governed by broader market sentiment. Rebounding oil prices should also offer decent support and potentially push USD/CAD closer to 1.24.