- Business activity in the US service sector fell to its lowest level in 4 years in June.
- US private employment fell in June.
- Canada’s trade deficit in May was larger than expected at C$1.93 billion.
The outlook for USD/CAD is bearish as the Canadian dollar rises against a weak US dollar. The dollar fell as several U.S. economic reports showed the economy softening, increasing the likelihood that the Fed will cut rates in September.
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Investors focused more on US data on Wednesday, including business activity and employment. Business activity in the service sector fell to the lowest level in the last 4 years in June. The ISM reported that the PMI fell from 53.8 to 48.8. The weakness in the economy is a relief for the Fed and is likely to give policymakers the confidence to switch to a more dovish stance.
Meanwhile, employment data showed some cracks in the labor market. U.S. private employment fell in June, surprising economists who had forecast an increase. Meanwhile, jobless claims rose, indicating a possible rise in the unemployment rate. Falling demand in the labor market is the only thing that will put pressure on the Fed to start cutting rates. Therefore, investors will pay attention to the non-farm payrolls report, which will provide a better picture of the state of the labor market.
Meanwhile, data from Canada revealed that the country’s May trade deficit was larger than expected at C$1.93 billion. This beat economists’ forecasts of a deficit of C$1.20 billion. Moreover, it was the third month that exports fell more than imports, indicating a decline in economic activity.
However, rate cut bets remained low as the latest inflation report revealed an acceleration in May. The probability of a cut in July fell to 45%.
USD/CAD Key Events Today
Investors are not expecting major reports from the US or Canada. Therefore, the pair could consolidate ahead of the US non-farm payrolls report.
USD/CAD Technical Outlook: Bears charge channel support
On the technical side, the USD/CAD price broke below the key support level of 1.3640 after a sharp move lower. The bearish bias has strengthened with the price well below the 30-SMA and the RSI near the oversold region. After the false breakout, the bears came back with enough momentum to head towards channel support.
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At the same time, the price is approaching the support of 1.3600. Therefore, the drop could pause and reverse to retest channel resistance. However, the decline could continue above the support level if the bears continue to be strong.
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