The USD/CAD pair has extended its losses for the second consecutive day, trading around 1.3675 during the early Asian session on Wednesday. The pair's decline is primarily attributed to the strengthening of the Canadian Dollar (CAD) due to rising crude oil prices and dovish remarks from Federal Reserve (Fed) officials, which have put pressure on the US Dollar (USD).
Canadian Economic Indicators
Despite the support from rising oil prices, the Canadian economy has shown signs of weakness. The S&P Global Manufacturing PMI for Canada held steady at 49.3 in June, falling short of market expectations of 50.2. This marks the 14th consecutive month of contraction, indicating persistent challenges in the manufacturing sector. Traders are now looking ahead to the release of the Canadian Unemployment Rate on Friday, which is expected to increase to 6.3% in June. Additionally, the Canadian economy is projected to add 22.5K jobs during the same period.
The USD is struggling due to dovish comments from Fed officials. On Tuesday, Fed Chair Jerome Powell noted that the Fed is getting back on the disinflationary path but emphasized the need for further evidence before considering interest rate cuts. Powell's remarks were echoed by Chicago Fed President Austan Goolsbee, who highlighted warning signs of a weakening real economy and suggested that progress toward the Fed's 2% inflation target could accelerate faster than anticipated.
Moreover, the US Bureau of Labor Statistics reported an increase in Job Openings and Labor Turnover Survey (JOLTS) job openings to 8.14 million in May, surpassing forecasts of 7.91 million. While this indicates a strong labor market, it has not been enough to offset the dovish tone set by Fed officials.
Looking ahead, traders will closely monitor key economic data releases, including the US ADP Employment Change, ISM Services PMI for June, and the FOMC Minutes, which are due later on Wednesday. These indicators will provide further insights into the US economic outlook and the Fed's monetary policy stance.
As the USD/CAD pair trades on a softer note, the interplay between rising oil prices and dovish Fed remarks will continue to shape its trajectory. Should oil prices remain elevated and the Fed maintain a cautious approach to interest rate cuts, the CAD could see further gains against the USD.
The USD/CAD pair has broken below the lower boundary of the ascending channel, indicating a significant shift in market sentiment. Currently, the price is testing the strength of the order block. The ability of bears to push prices below the value zone suggests a strong bearish appetite.
Technical indicators reinforce this bearish outlook. The Moving Average Convergence Divergence (MACD) has entered the bearish zone, with the signal line crossing below the zero line. Additionally, the Relative Strength Index (RSI) has reached oversold levels and is likely to remain below 60%, signaling continued downward momentum.
Furthermore, the Exponential Moving Averages (EMA) add to the bearish case. The 50-day EMA has crossed below the 200-day EMA, forming a death cross, which traditionally indicates a bearish reversal.
Overall, these technical signals suggest a continuation of the bearish trend in the USD/CAD pair. Traders should be cautious and consider these factors in their decision-making processes.
The USD/CAD pair's recent depreciation reflects a confluence of factors, including the strengthening of the CAD due to rising oil prices and the downward pressure on the USD from dovish Fed comments. While the Canadian economy faces challenges, particularly in the manufacturing sector, the outlook for the USD/CAD pair will largely depend on upcoming economic data and the Fed's policy direction. Traders should remain vigilant and responsive to these developments to navigate the ongoing volatility in the currency markets.
| Time | Currency | Event | Impact | Actual | Forecast | Previous |
|---|---|---|---|---|---|---|
| 14:55 | EUR | HCOB Services PMI Final | High | 53.1 | 53.5 | 54.2 |
| 19:15 | USD | ADP Employment Change | High | 160K | 152K | |
| 19:30 | CAD | Balance of Trade | High | C$-1.2B | C$-1.05B | |
| 19:30 | USD | Initial Jobless Claims | High | 235K | 233K | |
| 21:00 | USD | ISM Services PMI | High | 52.5 | 53.8 |
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