The USDCAD was higher last week as the greenback tried to shake off months of weakness against global currencies. Strong manufacturing data and a drop in the unemployment rate made traders believe that the U.S. economy was mounting a real recovery and the move higher would have had a short-covering element to it.
Data out of the Canadian economy also highlighted a strong upturn in the manufacturing sector, which builds on the recovery from a brutal second quarter downturn. Production and order books expanded at the quickest pace in two years and this gives hope that the worst is behind for Canada.
The real story for the USDCAD pair is in oil, where the mid-March spike lows to negative territory saw a high in the USD. The Canadian dollar has gained since that date but there are signs that oil may have topped and this is coinciding with stronger U.S. economic data.
Traders will now be focused on tomorrow’s interest rate decision from the Bank of Canada (BoC). The bank is widely expected to hold interest rates at 0.25%, which would mean little chance of volatility for the Loonie. As with other interest rate decisions from developed economies, the real action will be in the press conference. Annual GDP was 13% lower in the Canadian economy for the second quarter of 2020 and the unemployment rate is more sticky, which is also lending a hand to dollar bulls.
USDCAD Technical Outlook
The U.S. dollar has crawled out of a downtrend that has persisted since mid-March and the price action in USDCAD is very similar to that of the Norwegian dollar, which I wrote about on Friday. The oil currencies are under pressure and the U.S. dollar could see a rally to the 50-day moving average ahead of 1.3400 versus the CAD. Bullish traders would need to be cautious with the 1.3000 level close and the rate decision would be a risky time to get long.
USDCAD Daily Chart