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USD/CAD – Canadian Dollar Dips as Trade Deficit Jumps

The Canadian dollar has posted losses in the Thursday session, erasing the gains seen on Wednesday. USD/CAD is trading at 1.2846, down 0.29% on the day. On the release front, Canada’s trade deficit jumped to C$4.2 billion, well above the estimate of C$2.3 billion. In the US, unemployment claims edged up to 211 thousand, easily beating the estimate of 225 thousand. Later in the day, ISM Non-Manufacturing PMI is expected to drop to 58.1 points. On Friday, Canada releases Ivey PMI.

As expected, the Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, which said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.

US President Trump made waves when he imposed tariffs on steel and aluminum imports earlier in the year. However, Trump announced this week that he had extended exemptions on the tariffs for Canada and Mexico for another 30 days. The exemptions come at a sensitive time, with the US, Canada and Mexico neck deep in negotiations over a new NAFTA trade agreement. The talks have made significant progress, but the critical auto pact remains a stumbling block. It is likely that a tentative agreement will be hammered out, perhaps later this month. The Bank of Canada has dropped strong hints that it plans to raise interest rates later this year, but policymakers would like the NAFTA issue to be resolved before the next rate hike.

The US Dollar is the market’s darling [1]

U.S Dollar’s Deja Vu [2]

USD/CAD Fundamentals

Thursday (May 3)

Friday (May 4)

*All release times are DST

*Key events are in bold

USD/CAD for Thursday, May 3, 2018

USD/CAD, May 3 at 7:55 DST

Open: 1.2884 High: 1.2887 Low: 1.2816 Close: 1.2846

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2590 1.2687 1.2757 1.2850 1.2943 1.3015

USD/CAD edged lower in the Asian session. The pair posted slight losses in the European session but has recovered

Further levels in both directions:

OANDA’s Open Positions Ratio

USD/CAD ratio continues to show little movement this week. Currently, short positions have a majority (59%), indicative of slight trader bias towards USD/CAD continuing to move downwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher [6]

Currency Analyst at Market Pulse [7]
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.