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Canadian dollar dips on soft PMI

The Canadian dollar is slightly higher on the first trading day of the year. Currently, USD/CAD is trading at 1.2748, up 0.11% on the day. On the fundamental front, Canada Ivey PMI fell sharply. On Friday, both Canada and the US release key employment data, so traders should be prepared for some volatility in the North American session on Friday.

Canada Ivey PMI slides

Recent Canadian data has been decent, so it was quite a surprise for the markets as Ivey PMI slowed to 46.7 in December, down sharply from 52.7. The street had expected the index to make a small gain, with a consensus estimate of 53.1 points. This reading put Ivey PMI in contraction territory for the first time since May.

Is the US dollar headed even lower?

The US dollar has bid farewell to 2020, which was nothing short of miserable for the currency. The dollar became the punching bag against the majors, and cyclical currencies like the Canadian dollar have noticeably outperformed. In fact, since April, the Canadian dollar has racked up winning months against the greenback, with the exception of September. Canada has also jumped on the bandwagon stockmarket party, as the Toronto Stock Exchange (TSX) posted an intra-day record on Thursday.

Will the US dollar continue to head lower? There is good reason to expect that the downward trend will continue in early 2021. This week’s Georgia senate race saw the Democrats snag both seats, which gives them control of the Senate. The Democrats now control all three branches of the federal government, which marks a huge shift in power in Washington, D.C. This shift is expected to have a strong effect on the financial markets, as the Democrats will now have a free hand to enact their legislative agenda, including more stimulus and higher taxes. With more dollars flooding the economy in the form of stimulus, the US dollar’s woes could well continue in the early part of 2021.

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USD/CAD Technical

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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 [5]

Market Analyst at OANDA [6]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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