The Canadian economy had a growth spurt. Q1 GDP grew 3.7%, y/y, well above the 2.7% posted in May, but below forecasts for 3.9% growth. March GDP rose 0.5%, , beating the forecast for a 0.2% gain.
Prior to the data release, USDCAD had climbed from the overnight low of 1.3438 to 1.3467 as WTI prices inched lower. The GDP data erased the USDCAD gains.
USDCAD bulls and bears are in a tug of war. The bears expect added USDCAD losses due to
- a) The Bank of Canada has shifted its policy stance to reluctantly neutral from doveish due to steadily improving Canadian data. Today’s GDP data is added support.
- b) Stretched positioning also favours a move lower in USDCAD. The latest Commitments of Traders report shows speculators are very short Canadian dollars. Stop loss selling on a move below 1.3410 could exacerbate USDCAD selling.
- c) Bearish intraday USDCAD technicals pointing to further USDCAD weakness.
At the other end of the rope, USDCAD bulls note:
- a) Strong support at various levels between 1.3310 and 1.3410 which should serve to reduce the “stop-loss risk “from long USDCAD positions.
- b) The prospect of higher US rates and at a faster pace than anticipated while Canadian rates will remain unchanged.
- c) Oil price uncertainty. WTI traders are torn between Opec cuts, and rising supply from Libya and the US.
USDCAD selling is likely today, due to month end portfolio rebalancing but once that is out the way, USDCAD may consolidate within a 1.3410-1.3510 range until Friday’s US employment report.
Oil prices are trading at tis week’s low and in a downtrend while prices are below 48.75.
The overnight session had a lot to deal with including, China data, RBNZ’s Financial Stability Review and a UK election poll.
China Manufacturing PMI (51.2) beat forecasts but was unchanged from April. Nevertheless, it help to improve FX risk sentiment.
USDJPY rallied from 110.76 to 111.21 by mid day in Japan, supported by US rate hike concerns and mildly improving risk sentiment. The move was erased by the New York open.
GBPUSD came under pressure after a UK poll showed that Tory Prime Minister Theresa May’s majority government was at risk. GBPUSD dropped from 1.2862 to 1.2771 by mid-morning in Europe. Those losses were recovered in early New York trading, in part because of GBPUSD demand for month end.
EURUSD see-sawed in a 1.1165-95 range in Asia and early European trading. It is trading in New York at the overnight peak. Weaker than expected Eurozone inflation data in May (Actual 1.4% vs. forecast 1.5%, year over year) was ignored as was a small drop in the unemployment rate. Price movements are being distorted by month end flows.
AUDUSD and NZDUSD are trading well above their overnight lows on the back of broad dollar weakness.
The greenback will be on the defensive until the 1600 GMT fix has passed. Afterwards, a US dollar rebound is likely ahead of Friday’s nonfarm payrolls report.
USDCAD Technical outlook:
The USDCAD technicals are bearish while prices are below 1.3480 and looking for a break of support at 1.3440 to extend losses to 1.3410. A decisive break below 1.3410 would negate the uptrend from April 13 and shift the focus to the April low of 1.3220. A break above 1.3480 will target resistance at 1.3540, which if broken would put 1.3750 in play. For today, USDCAD support is at 1.3440, 1.3410 and 1.3350. Resistance is at 1.3480 and 1.3540
Today’s Range 1.3380-1.3480
Chart: USDCAD 30 minute
Source: Saxo Bank