- Oil briefly hit a two-month high, helping the Canadian dollar rise.
- Canada’s manufacturing sector remained in contraction in June.
- The US dollar weakened after Powell’s dovish remarks.
The USD/CAD forecast is falling into a bearish trend as the Canadian dollar gains ground after a brief rally in oil prices. At the same time, the loonie received support from a weaker US dollar after Powell’s slightly dovish comments on inflation.
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Canada’s economy benefits when fuel prices rise because the country is a net exporter of oil. At the same time, the country’s currency is growing. On Tuesday, oil briefly hit a two-month high, helping the Canadian dollar rise against the US dollar. What’s more, the lunatic held on to gains despite the pullback in oil prices.
Meanwhile, data from Canada showed that the manufacturing sector remained in contraction in June. The manufacturing PMI remained at 49.3, showing business activity unchanged from the previous month. In particular, recent data on GDP and inflation surprised to the upside. Accordingly, expectations for a BoC rate cut have fallen. The odds of a cut in July fell below 50%. However, this could change with incoming data.
On the other hand, the US dollar weakened after Powell’s statements in the previous session. Powell acknowledged that there has been progress on inflation and that the central bank is likely to cut rates later in the year. Although he did not indicate the number of cuts or the timing, it was clear that he was more confident that inflation was on a downward trend. Accordingly, expectations of a rate cut have risen.
Elsewhere, data showed U.S. job vacancies rose to 8.140 million compared with expectations for 7.910 million jobs.
USD/CAD Key Events Today
- Private sector employment change in the US
- US Unemployment Claims
- US ISM services PMI
- FOMC minutes
USD/CAD Technical Forecast: Bears in advantage after false breakout
On the technical side, the USD/CAD price made a false breakout above its channel resistance before the bears regained control. Consequently, the price made a shock move as the sentiment suddenly shifted from bullish to bearish.
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The price is now trading below the 30-SMA and the RSI is in bearish territory. Therefore, with the bears in the lead, the price is likely to continue lower to test the 1.3640 support level. This also means that the downtrend could continue with a lower low. However, if the price fails to make a lower low, the bulls could try to break the bearish channel again.
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