Market Analysis – USD/CAD
The USDCAD pair is demonstrating an uptrend during this morning’s Asian Session, trading at the level of 1.2079. However, the asset did show bearish movement the day before due to the depreciating US Dollar, despite the negative outlook on the financial system given from the Bank of Canada. The price movement this morning has increased by approximately 26 pips, but has not formed more than a retracement as the price is still trading lower than the latest upward movement.
When looking at the performance of the currencies individually, we can see the US Dollar index yesterday declined as the currency weakened against its main competitors such as against the Euro, Yen, and Pound. Looking at the Canadian Dollar performance today we can see that the currency is declining against the Euro, Pound and Japanese Yen.
The Bank of Canada in the submitted report, highlighted the increased vulnerability of households that took out mortgage loans that do not correspond to their real income. Among the main threats to financial stability, there is a problem of increased demand for liquidity in the bond market, which banks are unable to provide in the current period of increased load. Summarizing the report, Governor of the Bank of Canada Tiff Macklem assured that in this difficult period the department would react to all current and new risks, so there are no serious concerns for the state of the economy.
Yesterday, the American currency did not show clear dynamics, as investors reacted differently to the incoming economic information. On the one hand, the US Dollar was supported by the decrease in Initial Jobless Claims, which amounted to 444,000, which is lower than the projected 450,000. On the other hand, the manufacturing activity index for May fell very sharply to 31.5 points from 50.2 points for April 2021.
American investors react to the minutes of the last meeting of the US Federal Reserve Committee published this week. According to the document, some officials of the regulator admitted that it is possible to discuss an adjustment in the volume of purchases of assets if the economy begins to approach the regulator’s targets for employment and inflation. Currently, the volume of purchases of bonds is at least $120B a month, and the regulator’s balance is close to $8.0T. However, the protocols did not arouse enthusiasm among investors since officials had previously stated that tightening monetary policy is possible, but only after some time and on the basis of a large amount of collected data.
The exchange rate between the States and Canada is known to be correlated at times with the price of oil as Canada is the biggest provider of oil to the US. For this reason, traders do keep an eye on the price movement of Oil, though it is important to understand that other elements affect the exchange rate other than the Oil Correlation. The price is under pressure from several negative factors. First of all, investors fear the imminent conclusion of a nuclear deal between Iran, the United States, and the Eurozone, which will lead to the lifting of sanctions on the Islamic republic and the inflow of large volumes of Iranian oil to the market. Yesterday, it became known about significant progress in the negotiations, and the Eurozone representatives expressed confidence that the deal would be concluded. Experts believe that this year global demand will only grow, so new oil supplies from Iran will not put significant pressure on the market.
Resistance levels: 1.2133, 1.2317.
Support levels: 1.2022, 1.1900.