USDCAD Open 1.1020-25 Overnight Range 1.1018-1.1034
The USDCAD languished in another narrow range overnight while other G-10 currency pairs enjoyed sporadic bouts of activity. Kiwi led the way with the RBNZ hiking rates by 0.25 basis points which was widely anticipated. The ensuing statement was a tad on the hawkish but by the Toronto open, NZDUSD had retraced all of its post announcement gains. The keenly awaited speech by the ECB’s Mario Draghi, ended up being a rehash of previous comments and EURUSD just sat. The Bank of Canada governor, Stephen Poloz is giving a speech in Saskatchewan today entitled Canada’s Hot-and Not. He may take this opportunity to dump on the Canadian dollar, again. US durable goods and Initial Jobless claims are the main data events.
Today’s Range 1.1005-1.1050
Offsetting economic impact of Keystone Pipeline delay
The Canadian dollar is not only struggling to hang on to its recent gains, it is trying to avoid another wholesale sell-off. The positive effect from the recent series of strong domestic data releases including CPI and retail sales is being off-set by Stephen Poloz, the governor of the Bank of Canada. His constant references to deflation and admissions of rate cuts not being off the table are deliberate and not very subtle attempts to devalue the currency. He may have a very good reason for his actions. In his former role as President of Export Development Corporation (EDC) he became well aware of the benefits of a weaker currency on exports. The on-going discount applied to prices paid for Canadian oil (Western Canada Select-WCS) and West Texas Intermediate (WTI) is currently around $21.00 per barrel and mainly due to pipeline congestion in Cushing, Oklahoma. The US administration announced another delay in the approval of the Keystone XL pipeline which would have alleviated the congestion and the discount. Perhaps Mr. Poloz views a weaker currency as an effective measure to counteract the US politics.
USDCAD technical outlook
The USDCAD rally from October 2013 ended at the beginning of April with the move through the up-trend line at 1.0990. The ensuing sell-off was contained by the 38.2 percent Fibonacci retracement level in the 1.0850-80 area and USDCAD has steadily risen. The intraday up-trend from the 1.0855 low remains intact above 1.0990 but faces good resistance in the 1.1040-60 zone. A break above 1.1080 would argue that a short-term bottom is in place at 1.0855 and re-target 1.1270.
Chart USDCAD 4-hour
Source: Saxo Bank
What is the US index telling us?
The US dollar index suggests that the dominate US dollar downtrend from last June remains intact although there is good support in the 79.20 area. Intraday, the USDX rally is intact above 79.75 looking for another test of the 80.10-20 area. If the up trend continues it would support a retreat in EURUSD and add to the upside pressure on USDCAD.
Chart US dollar index
Source: Saxo Bank