Forex » USD/CAD pair to keep an eye on this week
The USD/CAD pair will face a series of forex tests this week. We have the Bank of Canada interest rate decision midweek, followed by monthly employment reports from both North American countries on Friday, as well as several other Tier 2 data due during the week. Fed Chairman Powell will also testify this week.
Ahead of all these macro events, the USD/CAD pair continues to consolidate in an overall uptrend, with investors favoring the US dollar across the board in recent weeks due to a hawkish performance by the Fed amid strong data from the world’s larger economy. We believe that this week the rates will overcome the mark of 1.3700 with a high probability.
Is the USD/CAD pair ready for a breakout?
Before discussing macro events, let’s take a look at the USD/CAD daily chart:
Source: StoneX, Tradingview
After breaking above 1.35 a few weeks ago, USD/CAD remained in a consolidation phase. But with prices slightly above the still rising 200-day moving average and 21-day moving average EMA, the path of least resistance is objectively up.
Therefore, we will maintain a bullish technical view on this pair as long as it maintains support in the shaded area of the chart between 1.3470 and 1.3580. We believe that a breakdown is more likely than a bearish move in this area due to favorable macroeconomic factors.
However, we are a little cautious as the recent improvement in risk appetite may prevent US dollar bulls from entering large US dollar long positions.
What supported the USD/CAD pair?
The USD/CAD pair is rising in forex, as investors expect the Fed to continue raising rates and keep monetary policy in cut mode longer than expected. This is because the data showed that price and wage inflation was robust and employment remained very strong. So it’s more of a US dollar story than a Canadian dollar story. However, the latter did not exactly fall off the cliff. This was helped in part by a slightly “risky” deal that capped the fall in commodity dollars across the board. But the expectation that the Bank of Canada will put a hold on rate hikes is what really contributed to the decline.
What are the key events for the USD/CAD pair this week?
The list below shows some of the key events that can affect the direction of the USD/CAD pair in forex (we have highlighted the most important ones):
Monday, March 6
Tuesday, March 7
- Fed Chairman Powell testifies
Wednesday, March 8
- US Nonfarm Employment Changes from ADP
- Bank of Canada rate decision
- Fed Chairman Powell testifies
- JOLTS jobs in the USA
- Auction of 10-year US bonds
Thursday 9 March
- US Jobless Claims
Friday 10 March
- Non-farm payroll (NFP) job creation in the US
- US unemployment rate
- The evolution of employment in Canada
- Unemployment rate in Canada
Undoubtedly, the two most important events among the above are:
- Bank of Canada Interest Rate Decision (Wednesday)
The Bank of Canada is not expected to raise rates after a total increase of 425 basis points. The central bank signaled at its previous meeting that it would take a break to digest the effects of the latest tightening. We are seeing weaker growth and slower inflation, although job creation has been better than expected. Will we see another strong labor market move on Friday?
If the Bank of Canada stays on course to raise rates, it could pave the way for more gains in the currency market for USD/CAD, especially if Gov. Tiff Macklem adopts less belligerent language in his monetary policy statement.
- US Nonfarm Job Creation (NFP) (Friday)
The resilience of the US labor market in the face of rate hikes and high inflation has kept the Fed in hawkish mode, which helped maintain support for the dollar last month. Will we see new evidence of a tough job market? If so, this should help further support the US dollar in forex and keep the USD/CAD pair bullish.
Text: Fawad Razaqzada, FOREX.com » Official site
Fawad is an experienced analyst, business educator and economist. He produces research and analytical content using his extensive knowledge of the global economy and financial markets, which he has acquired over the past 12 years in the industry. Fawad specializes in forex, stock indices and commodity markets, using a combination of fundamental and technical analysis to provide useful trading information and anticipate possible market movements. His macro commentaries are regularly quoted by major financial publications such as Reuters and Market Watch.
Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.