USD/CAD slides on US CPI, Canadian manufacturing sales
James Chen September 16, 2015 8:13 PM
<p>USD/CAD fell on Wednesday morning after a combination of data from the US and Canada prompted the US dollar to pare its previous gains and […]</p>
USD/CAD fell on Wednesday morning after a combination of data from the US and Canada prompted the US dollar to pare its previous gains and the Canadian dollar to strengthen.
The US Labor Department released Consumer Price Index (CPI) figures for August that unexpectedly fell for the first time since January, largely due to low oil and gasoline prices. This placed pressure on the US dollar, as any signal of disinflation may play a significant role in the Fed’s decision on whether or not to begin raising interest rates this week. The Fed is slated to begin its two-day meeting on Wednesday and issue a statement announcing its rate decision on Thursday. Coupled with recent global market volatility in the equity markets, the CPI figures may have the potential to create complications for an immediate rate hike, despite strength in unemployment and housing.
Simultaneously, Canadian manufacturing sales data was reported to have increased by 1.7% in July, substantially higher than previous consensus expectations of 1.1%. Furthermore, June’s sales increase was revised up from 1.2% to 1.5%. This positive economic news for Canada led to an initial surge for the Canadian dollar, which placed additional pressure on USD/CAD.
From a technical perspective, since hitting an 11-year high of 1.3352 in late August, USD/CAD has spent the past three weeks consolidating within a relatively tight trading range just below that long-term high. This consolidation has formed a clear triangle chart pattern around the key 1.3200 support/resistance level. Prior to this consolidation, the currency pair had been entrenched in a sharp uptrend that had been in place since mid-June.
Driving this uptrend for the past several months has been a combination of plunging crude oil prices, which is closely correlated with the Canadian dollar, and a strengthening US dollar that has continued to price-in expectations of an impending interest rate hike in the US.
While oil prices should continue to remain depressed due to persistent oversupply conditions and the US dollar should continue to be supported by expectations of a rate hike sometime in the near future, an impending USD/CAD pullback could be very likely, especially if the Fed fails to raise interest rates on Thursday.
Any sustained breakdown below the noted 1.3200 level and triangle pattern could result in a pullback towards the 1.3000 psychological support level, followed by major support at 1.2800.
In the opposite event of a Fed decision to raise rates on Thursday, any break above the triangle pattern should target immediate resistance around 1.3400, followed by the key 1.3600 resistance objective.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.