The economic calendar should provide some volatility for the USDCAD exchange rate this week.
USDCAD – Daily Chart
The price of USDCAD has been trending lower from highs in early August. Resistance for a dollar rally stands at 1.3590 but there is potential to move lower.
The data starts late on Tuesday with US ISM Manufacturing PMI data. The market is expecting a rise from 46.8 to 47.8. A reading below is still in contraction territory and highlights weakness in the US manufacturing sector.
Wednesday evening brings balance of trade figures and a Bank of Canada rate decision. Economists are expecting another rate cut from governor Tiff Macklem. The BoC cut its key interest rate to 4.5% in July and Macklem said during a news conference that it would be reasonable to expect further rate cuts if inflation continues to ease.
The cut was widely expected by economists after a slowdown in June inflation. It was the central bank’s second consecutive rate cut when it cut rates for the first time since March 2020.
“If inflation continues to ease broadly in line with our forecast, it is reasonable to expect further cuts in our policy interest rate,” Macklem said.
The Canadian economy has been weaker than the economy in the United States but traders have started to sell the US dollar as the Federal Reserve embarks on its own path of monetary easing.
The data on Thursday will come from US services PMI and a stronger reading of 51.5 is expected. Services PMI makes up 90% of the economy and is an important number.
Some analysts feel the Fed has been slow to start its own interest rate cuts.
“I think they don’t want to go beyond what they’ve already clearly communicated, all the way back in March, when they were suggesting at that time three rate cuts of 25 basis points each. We still have three meetings left. I think we still get those three rate cuts of 25 basis points each, and they’ll take a very gradual pace from that point forward until the Fed funds target rate gets back to 3%,” said Kevin Mahn at Hennion & Walsh.
Friday will bring employment data from Canada and the United States. With these data releases, the USDCAD will be given a clear path on where it goes next.
As both central banks reduce rates, traders will focus again on economic strength. Monday in the United States is labour day and many markets will be closed.
