USD/CAD – Canadian Dollar Slide Continues After Weak GDP

The Canadian dollar has posted losses in the Monday session. Early in the North American session, USD/CAD is trading at 1.2959, up 0.58% on the day. On the release front, there are no Canadian events. In the US, today’s key indicator is Non-Manufacturing PMI, which is expected to dip to 58.9 points. On Tuesday, Canada releases Ivey PMI.

Canada’s economy slowed down in January, as GDP posted a weak gain of 0.1%, matching the estimate. On an annualized basis, growth in the fourth quarter was 1.7%, considerably lower than the Bank of Canada’s most recent projection of 2.5%. With the Fed expected to raise rates up to four times in 2018, the BoC will be pressed to match rate hikes with its southern neighbor, or risk having the Canadian currency head lower. Currently, the BoC is projecting only two rate hikes in 2018. Strong growth has propelled the BoC to raise rates three times since July, but there are some factors weighing against a rate hike before May. First, fourth quarter expansion may fall short of the BoC’s forecast of 2.5%. As well, the future of NAFTA remains unclear, as negotiations between Canada, Mexico and the US have floundered. If the US decides to pull out of NAFTA, the repercussions on the Canadian economy could be significant, and the BoC will have to delay any plans to raise rates.

Canadian policymakers continue to look with growing alarm at protectionist moves by the Trump administration. Negotiations on NAFTA have not shown much progress, as a seventh and final round of talks are underway in Mexico City. As if the headache of a possible blowup of NAFTA wasn’t bad enough, the Canadian government now has to deal with the stiff imports that President Trump is set to apply to steel and aluminum imports. With some 80% of Canadian exports heading south to the US, Canada can ill afford a trade war with its giant neighbor. Still, the government will be under pressure to respond forcefully and stand up for its domestic steel industry.

USD/CAD Fundamentals

Monday (March 5)

• 9:45 US Final Services PMI. Estimate 55.9
• 10:00 US ISM Non-Manufacturing PMI. Estimate 58.9
• 13:15 US FOMC Member Randal Quarles Speaks

Tuesday (March 6)

• 10:00 Canadian Ivey PMI. Estimate 56.3

*All release times are GMT

*Key events are in bold

USD/CAD for Monday, March 5, 2018

USD/CAD, March 5 at 8:40 EST

Open: 1.2884 High: 1.2939 Low: 1.2865 Close: 1.2959

USD/CAD Technical

Resistance lines continue to fall as USD/CAD moves higher. The pair posted slight gains in the Asian session and continues to move higher in European trade

• 1.2920 is providing support
• 1.3014 is the next resistance line
• Current range: 1.2920 to 1.3014

Further levels in both directions:

• Below: 1.2920, 1.2865, 1.2757 and 1.2630
• Above: 1.3014, 1.3165 and 1.3270

OANDA’s Open Positions Ratio

In the Monday session, USD/CAD ratio is showing short positions with a majority (66%). This is indicative of trader bias towards USD/CAD reversing directions and moving lower.

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