Canadian dollar drifting

The Canadian dollar continues to drift this week. In the North American session, USD/CAD is trading at 1.2061, down 0.08% on the day.

Will the Canadian dollar break below 1.20?

The Canadian dollar enjoyed another strong month in May, with gains of 1.87%. The “eye on the prize” is the 1.20 line, which has psychological significance. This major support level has held since May of 2015, but this line could break shortly, as the Canadian dollar continues to look strong. USD/CAD has plunged 5.3% since April 1, and the pair came within a whisker of the 1.20 line, touching a low of 1.2007.

Canada’s economy continued to forge ahead in the first quarter of the year. GDP for March came in at a solid 1.1%, above the forecast of 1.0% and above the February reading of 0.4%. The Q1 GDP report showed a 5.6% gain, down from the stellar 9.6% gain in Q4. This was shy of the consensus of 6.7%. The Canadian dollar responded with gains after the GDP release and came close to the 1.20 line, but was unable to hold onto these gains.

The economic recovery has been fuelled by a resurgence in exports and the strong housing market. Interestingly, the recovery has forged ahead largely without the support of consumer spending, a key driver of economic growth. Strict lockdowns have put a crimp in consumer spending, but pent-up demand is expected to translate into a surge in consumer spending later in the year.

The BoC holds its policy meeting next week. The bank has signalled that its key interest rate could rise above the current 0.25% in late 2022. If the BoC continues to drum a hawkish message, it should translate into more gains for the pesky Canadian dollar.

.

       USD/CAD Technical

  • USD/CAD faces resistance at 1.2137 and 1.2195
  • The pair continues to test support at 1.2025. Below, there is support at 1.1971

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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

Market Analyst at OANDA
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

Latest posts by Kenny Fisher (see all)