USDCAD rallied 1.4% since Friday morning and buyers are gaga over prospects for a decisive break of 1.3360-80 leading to 1.3670 and higher. The intraday and short term technicals are bullish. The uptrend line from February 2018 was tested, and it held. The subsequent rally above 1.3180 and then 1.3270 negated the downward pressure and shifted the focus topside.
The bullish USDCAD technical sentiment the weak Q4 GDP report, released Friday. It was the slowest quarterly growth in two years and follows a somewhat weak inflation report. Low inflation and low growth the Bank of Canada leaves rates unchanged on Wednesday. USDCAD may be further underpinned by escalating China/Canada tensions over the arrest of Huawei CFO Meng Wanzhou. China detained two Canadians in December and yesterday officially said they were charged with spying.
USDCAD tends to appear very offered near its lows and very bid near its highs. Today’s USDCAD bulls may suffer the same fate as Friday’s USDCAD bears. The currency pair is locked in a 1.3060-1.3370 range and has been since January 7. That may not change any time soon.
Economists and the Bank of Canada expected Q4 GDP data to be weak so Friday’s news shouldn’t have been a surprise. They expected low oil prices to be a major factor and they were. They also expected the weakness to be temporary. West Texas oil prices rebounded 32% since December 24 which is a good start and government and consumer spending were higher.
The incumbent Liberal party is fighting off a corruption scandal and a slew of negative headlines. And are heading to the polls in September. They are tabling a new budget on March 19. The scandals and Q4 GDP report may lead to a stimulus budget with an eye on “vote-buying.”
News of a China/US trade agreement would lift commodity bloc currencies and oil prices, while simultaneously limiting USDCAD gains.
Wednesday’s Bank of Canada policy meeting is expected to be a “non-event, but it wouldn’t be a stretch to expect a whiff of optimism in the statement.
Wall Street is trading higher, following in the footsteps of Asia and European bourses. A Wall Street Journal report suggesting China and the US are nearing the trade talks finish line bolstered prices. Traders ignored the 0.6% drop in Construction spending in December (forecast 0.2%).