USD/CAD sharply declined at 1.2797 and intraday bias remained steady on the downside. As expected, corrective rally from 1.2460 could have completed at 1.3251 already.
Further, declined is anticipated to touch the support level of 1.2654 first. On the upside, above the support level of 1.2995 turned resistance and reduce the bearish outlook, which turn focus back to resistance of 1.3251 instead.
The Canadian dollar posted advancing results on Tuesday, but the currency struggled in the North American session. USD/CAD changed hands at 1.2840 yesterday and posted 0.8% gains in Canadian Manufacturing Sales in June.
Given these results, it only suggests that the pair had an impressive recovery after posting earlier losses of 1.0% in May release. Meanwhile, investors kept their eyes on the FOMC July policy meeting.
Elsewhere in the US, inflation numbers were weak, with CPI at 0.0% matching the estimate. Thus, it resulted that the key index unfortunately failed to report a monthly gain for the first time since February, pushing worries over the economy’s deflation.
Series of USD/CAD Declines
As shown in the chart below, USD/CAD traded down from 1.31792 on August 8 with resistance level of 1.3250 and support level 1.3022 on August 8. The pair further declined at 1.30557 for two-straight sessions as both currencies have been hit by the destruction in the oil patch, but Canada was strongly hurt.
Moreover, USD/CAD continued to drop in the next session by 0.01874 basis points, which tried to break out at 1.3022 support, fueled by the increasingly expensive housing sector in Canada. Hearing this, debt-to-disposable income ratio for households were rapidly higher.
Earlier in two weeks, the Canadian dollar declined against the US dollar. The greenback added 0.67 against the CAD that day.
As shown in the chart below, the pair started to rally, which changed hands from 1.29633 on March 31 and ended the session at 1.31354 on April 5 with a -0.01721 basis points.
The significant rally was led by investors that were closely watching on the upcoming Federal Open Market Committee (FOMC) meeting scheduled on August 6. With heightened concerns over the meeting, the USD finds support from the policy makers’ widely anticipated further signal of an approach from the U.S. central bank.
Meanwhile, USD/CAD has seen losses ahead of the FOMC meeting, which traded at 1.31422 and seen a sharp decline at 1.27584 with at 0.03838 basis points as investors were disappointed in the decisions of the policy makers.
With the recent outnumbering declines of USD/CAD led by destruction in the oil patch and the costly housing sector in Canada, which sent the debt-to-disposable income ratio for households higher, we concluded that the pair would decline further.
In addition, the potential rate hike in September is highly anticipated after data showed a strong employment numbers. Thus, the Federal Reserve made it clear that rate hike relies on the data, therefore, it seemed that there will be no rate hike next month as the inflation levels is close to zero.
We suggest that the Federal Reserve will remain on the sidelines until December or January.