Market Analysis – USDCAD
The US Dollar is showing moderate growth against the Canadian Dollar, developing a “bullish” signal, formed the day before when the instrument retreated from its local lows. So far since the market opened this week, the asset has increased by a reasonable 40 pips, however it should be noted that the price is still trading below the price rejection level of 1.2610 formed on Friday. The market is now looking to see if that asset is able to surpass any significant price levels now that Canada’s main commodity, Oil, is showing signs of resistance.
Moderate support for the US Dollar is provided by the continuing growth in the yield of US Treasury bonds, coupled with the general positive sentiment of investors regarding the prospects for the recovery of the American economy. Only statistics on inflation distorts the overall picture. In general, looking at the US Dollar we can see the asset is weakening against its main competitors including the Pound, Yen, and Euro during the last few hours though the currency index is slightly higher today after closing lower yesterday.
American investors are focused on the comments from the head of the US Federal Reserve Jerome Powell, which he made yesterday in an interview with CBS. The official said that the regulator was unlikely to raise rates this year, despite strong economic growth. At the same time, he confirmed that the department would do everything to support the economy during this period in what’s necessary for a full recovery. As a condition for raising rates, Powell named a moderate increase of inflation above the target level, at least for a short time. Also, the market will be monitoring President Biden’s meeting with bipartisan congressional today, during which he seeks their approval for a $2B infrastructure package. Currently, Republicans oppose the presidential initiative, insisting on cost cuts and a more moderate increase in corporate tax
In turn, the Canadian Dollar is still supported by a strong report on the Canadian labor market for March, published last Friday and reflecting a sharp decline in the unemployment rate in the country from 8.2% to 7.5%, which turned out to be significantly better than market expectations of 8%. The employment change in Canada in March also rose sharply by 303.1K, outstripping the growth rate of the previous month at the level of 259.2K. Market forecasts assumed an increase of only 100K. When looking at the overall movement of the Canadian Dollar this morning, we can see a lack of direction and volatility as traders await for further market drivers.
Traders are also reviewing the price of oil, as the instrument is known to be strongly correlated. Canada is one of the largest providers of Oil who are exporting to the USA. The results in the demand and price of the asset also affecting the price movement of the exchange rate. Yesterday, Oil rose moderately in response to the improved prospects for the recovery of the American economy, but failed to consolidate at new local highs. Investors are assessing the prospects of US inflation, which may lead to an adjustment in the monetary policy of the American regulator. In particular, Friday’s data on manufacturing inflation has already pointed to a record strengthening, so now traders are focused on consumer inflation, which will be released today. In general over the past year it seems that Oil prices are heavily related to economic growth and economic restrictions being put in place.
Investors are also awaiting the publication of a report from the American Petroleum Institute on oil reserves for the week of April 9th. The previous report indicated a decline in inventories by 2.618M barrels, and the results of the US Department of Energy slightly exceeded this value and reflected a decline of 3.522M barrels.
Resistance levels: 1.2600, 1.2650, 1.2700.
Support levels: 1.2554, 1.2500, 1.2439, 1.2400.