USDCAD Analysis15.09.2021by Michalis Efthymiou
The USDCAD has had an influx of economical events affecting the exchange rate from both sides of the border. Over the past three weeks, the asset has seen more bearish price movement due to a correcting US Dollar. However, without a doubt, the Canadian Dollar has shown signs of strengthening since May 2021.
The asset is influenced by different aspects of the market such as the standard impacts of monetary and fiscal policy. However, we will also look into the correlations which in the past have also driven demand levels. Generally speaking, it is vital to be looking at all drive drivers whether related to the market, the price, sentiment levels or correlations.
The latest Canadian Developments
The recent Bank of Canada decision to leave the monetary policy parameters unchanged had virtually no impact on the Canadian Dollar. The regulator kept the quantitative easing program volume at $2Billion per week. According to officials, the positive pace of economic recovery continues.
Over the past 12 months, new jobs have emerged, but the country still experiences periods of uneven growth. Inflation reached 3.1%, but it is not the problem since it compares the current price level with last year. In 2020, price values were below the current ones since QE was almost doubled, which held back the indicator. The bank noted that if the pace of economic recovery accelerates, the need for stimulation will disappear, and the regulator may abandon it at any time.
Canadian Employment Sector
The employment indicator for August fell from 94,000 to 90,200. Even though the employment change had declined considerably compared to the previous month, the positive element is that the figure remained higher than expected. The share of the labor force in the total population fell from 65.2% to 65.1%, and the unemployment rate decreased from 7.5% to 7.1%, with the forecast of a decrease only to 7.3%.
Growth in average hourly wages for August accelerated from 0.56% to 1.25% Year on Year. Therefore, generally speaking, the fundamentals from Canada remained overall positive. However, traders question whether the employment figures are likely to be overlooked as the US has scheduled the release of their new inflation figures. The CPI figures for the US are due to be released on Tuesday afternoon (14th September).
American investors are in no hurry to respond to yesterday’s labour market data, which showed a decrease in Initial Jobless Claims to 310,000 since everything may change dramatically by the end of the month when additional social benefits will stop operating and Americans will have to look for work.
US investors will also start looking towards the CPI figures which are due to be announced next Tuesday. The CPI figures are included in the yearly inflation rate which currently stands at 5.4% in the US. The inflation level is almost more than double the target of the federal Reserve but has not triggered any alterations.
The Federal Reserve remain dovish even with some calls for alterations. The inflation rate has remained high but had shown signs of decelerating in the month of July. If the inflation rate continues to remain at 5.4% or even decline, the market sentiment may change towards possible alterations.
The US Dollar / Canadian Dollar is known to be heavily correlated with the prices of Oil. Many traders may think how Oil can be correlated with USDCAD. However, Canada provides the highest amount of Oil to the United States. The US is the second highest consumer of Oil, of which 37% is provided by Canada.
As the demand for oil increases the sentiment towards the Canadian Dollar also rises. In addition to the rise in demand, rises in the price of oil can result in higher generate income for Canadian based companies as well as the central government. Currently, the highest threat for the prices of Oil remains possible lockdowns, restrictions as well as an oversupplied market.
To conclude, the price movement of the asset is not yet showing a clear direction but rather smaller swings. The latest significant movement was in favour of the US Dollar; however, traders should note this may be influenced by the CPI figures due to be released. The price movement has not managed to form high swing highs and higher swing lows. Traders are waiting for a strong price movement which can potentially break out of the current price range.
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