USD/CAD – Canadian dollar has stellar week, will rally continue?

The Canadian dollar posted its best week since June, jumping 1.9%. On Monday, the pair is trading at 1.3351, down 0.18% on the day. It’s a quiet start to the week, with just two events. Canada releases Ivey PMI, which is expected to improve to 58.1 points. The U.S. posts ISM Non-Manufacturing PMI, which is forecast to dip to 59.6 points. On Tuesday, Canada posts trade balance and the U.S publishes JOLTS Job Openings.

After a bumpy start to the week, risk appetite improved, helping boost the Canadian dollar. Investors were pleased with dovish comments from Fed Chair Jerome Powell on Thursday. The markets had dropped sharply after the Fed’s December rate statement, which was less dovish than expected, as the Fed said it would continue raising interest rates in 2019. Powell tempered this stance on Thursday with a more cautious outlook over rate policy. He said that he was aware of the risks of a slowdown in the U.S. economy and that the Fed would be patient in its policy decisions. The Fed is currently forecasting two rate hikes next year, but some analysts have forecast a rate cut next year, with the U.S. economy expected to slow down, compared to its torrid pace in 2018.

The Canadian dollar posted strong gains on Friday, after solid employment numbers. The economy created 9.3 thousand jobs, beating the estimate of 6.8 thousand. The unemployment rate remained pegged at 5.6%, edging below the forecast of 5.7%. U.S. employment numbers were sharp. Nonfarm payrolls jumped to 312 thousand, its highest level since February, while wage growth improved to 0.4%, up from 0.2% in the previous release.

The markets are keeping a close eye on U.S.-China trade talks, which started on Monday in Beijing. With the threat of more U.S tariffs on March 1, negotiators will be under pressure to produce some results after a bruising trade war that has shaken global equity markets and has slowed down the giant Chinese economy. If the sides report any progress, risk appetite will improve and the Canadian dollar could respond with gains.

Markets building on Friday bounce

Asia cautious about bullish mood

Improved risk appetite supports dollars demise

USD/CAD Fundamentals

Monday (January 7)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 59.6

Tuesday (January 8)

• 8:30 Canadian Trade Balance. Estimate -1.9B
• 8:30 US Trade Balance. Estimate -54.0B
• 10:00 US JOLTS Job Openings. Estimate 7.17M

*All release times are EST

*Key events are in bold

USD/CAD for Monday, January 7, 2019

USD/CAD, January 7 at 8:15 EST

Open: 1.3375 High: 1.3390 Low: 1.3344 Close: 1.3351

USD/CAD Technical

USD/CAD edged higher in the Asian session and is flat in European trade

• 1.3290 is providing support
• 1.3383 was tested earlier in resistance
• Current range: 1.3290 to 1.3383

Further levels in both directions:

• Below: 1.3290, 1.3200 and 1.3125
• Above: 1.3383, 1.3461, 1.3552 and 1.3696

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