Canadian Dollar, USD / CAD, Bank of Canada, Employment Data – Talking Points:
- Yesterday’s sale on Wall Street continued in Asia-Pacific trade, as the ASX 200 plunged more than 3%.
- Upcoming data on employment in Canada could support the local dollar.
- USD / CAD rates are about to resume their downtrend as prices scale to key chart resistance.
The safe haven US dollar and Japanese yen lost ground at the start of Asia-Pacific trade before rushing to close the Australian session as market participants look to the next mass report US non-farm payroll for August.
Stock markets plunged lower, following yesterday’s bloodbath as the Australian ASX 200 plunged 3% and S & P500 futures slipped another 0.5%.
Gold and silver prices rose, while 10-year US Treasury yields remained stable.
Going forward, the Eurozone construction PMI may turn out to be a more advanced market than the US and Canadian employment data for August.
Market reaction table created using TradingView
Jobs data may trigger USD / CAD downtrend
Upcoming employment data for Canada and the United States for August could weigh on the USD / CAD exchange rate and potentially halt the greenback’s 4-day attempt to rally against the loonie.
As noted in previous reports, the Federal Reserve ultra-accommodating posture in response to the coronavirus pandemic has been one of the driving forces behind the significant drop in USD / CAD rates, with the adoption of average inflation target (AIT) potentially exacerbating USD sales in the coming months.
However, recent statements by several members of the Bank of Canada suggesting that monetary policy may be at its effective limit, could also intensify the decline in the USD / CAD exchange rate in the short term.
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Deputy Governor Carolyn Wilkins said that “central banks are likely to run out of conventional firepower if we are seeing an economic slowdown in a world of low interest rates ”during the central bank’s monetary policy framework review on August 26.
This was followed by the governor Tiff Macklem’s statement that “a lot of people don’t feel that inflation is going down when food inflation averages close to 3%” at the Federal Reserve’s symposium in Jackson Hole.
These quotes could indicate that Canadian policymakers are increasingly sensitive to the potential impact of other monetary policy measures and may seek to roll back some of the BoC’s existing parameters, if future data shows that the economy local continues to evolve in the right direction.
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Relaxation of Covid-19 restrictions on CAD buoys
Additionally, the recent easing of lockdowns in Canada saw the University of Oxford’s government austerity index drop below the highest level of restrictions currently in place in the United States.
This gradual easing of restrictions is likely to foster economic growth and could see the local economy outperforming its neighbor to the south in the near term, as the number of Covid-19 cases in the United States continues to rise. The 7-day moving average of daily cases has been no less than 40,000 since June 28.
To that end, USD / CAD rates may continue to decline, with the return to normal supporting the risk-sensitive Canadian dollar.
USD / CAD Daily Chart – Lower Schiff Pitchfork Key Rates
From a technical standpoint, the path of least resistance for USD / CAD rates remains biased downward, as prices move within the limits of a fall. Schiff Pitchfork.
Although the RSI has moved out of oversold territory, it has yet to convincingly cross above 30 to test the downtrend extending from late March, suggesting that the rally of the more monthly low (1.3020) could run out of steam.
In addition, the MACD The indicator continues to follow in negative territory despite the rise in prices above the psychologically pivotal level of 1.31.
Therefore, further losses appear on the horizon if USD / CAD is unable to overcome resistance at the 21-day moving average and 38.2% Fibonacci (1.3199), with a daily close below the 50% Fibonacci likely signaling a resumption of primary downtrend and chart a path to test December 2019 low (1.2952).
USD / CAD daily chart created using TradingView
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– Written by Daniel Moss, Analyst for DailyFX
Follow me on twitter @DanielGMoss