The Canadian dollar weakened to $1.3710 in Wednesday trading, hitting an 8-week low, as the outlook for foreign currency inflows eased, while the US dollar strengthened. Canada’s trade deficit widened to CAD 1.10 billion in August from a revised CAD 0.29 billion in July, exceeding expectations of CAD 0.5 billion. This marked the largest gap since May, driven by a 1.0% decline in exports and a 3.0% drop in energy shipments, particularly crude oil which fell 4.1%.
Pressure on energy commodities increased as prices plummeted amid a lack of stronger stimulus from the world’s top importer, China. Meanwhile, upcoming labour data is expected to show further weakness in the labour market, raising bets of further monetary policy easing by the Bank of Canada. Elsewhere, the US dollar strengthened on expectations of a less dovish Federal Reserve and safe haven demand, pressuring the loonie further.
In the FX market, the USDCAD pair rose for the sixth consecutive day. Driven by a fresh wave of US dollar buying, USDCAD rose to the 1.3710 range, marking its highest level since 19 August. The recent strength of the US dollar has attracted new buyers, countering the previous significant decline. Usually, when a market sell-off ends, we see a strong rebound, and the current rise is in line with this expectation.
Meanwhile, the continued decline in oil prices has further contributed to the depreciation of the Canadian dollar, which is closely linked to crude oil. Furthermore, the two inflation reports scheduled for Thursday and Friday will provide a more substantial boost to USDCAD.
From a technical perspective, USDCAD’s intraday bias remains on the upside as a rebound from the short-term low of 1.3418 is underway. The decline from 1.3945 has likely completed at 1.3418. Further upside will be seen up to the 61.8% retracement of the 1.3945 to 1.3418 pullback at 1.3744. A decisive break there will target the 1.3945 high. On the downside, a move below 1.3646 minor support will turn the intraday bias to neutral first.
Click here to access our Economic Calendar
Ady Phangestu
Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
