The Canadian dollar continues to “skim the cream” from the current situation in the foreign exchange and commodity markets. Uncertain dollar positions helped USD/CAD bears reach three-month lows: the loonie returned to pre-crisis range, which was limited to 1.30 and 1.33. Almost all fundamental factors play in favor of the Canadian dollar, from the position of the Bank of Canada to the general growth of the oil market.
Key macroeconomic indicators enable sellers to show character. For example, the Canadian Nonfarms, which was published on Friday, was pleasantly in the green zone. US labor market data, as you know, also came out better than expected – but the greenback was actually unable to take advantage of this, as it too depended on the general market sentiment regarding anti-risk assets. But the loonie received additional support from oil, as it strengthened against the US dollar by more than a hundred points last Friday. Today the pair is trying to develop the downward dynamics, but they are not acting as confidently as they did at the end of last week. Nevertheless, the Canadian dollar retains the potential for its further revaluation, given the general fundamental background.
Let’s start with the Canadian labor market. Nonfarms of Canada were really impressive: contrary to an extremely negative forecast, the unemployment rate rose to 13.7%, although experts anticipated it to be near a 20 percent mark. But the growth rate of the number of employees should have been reduced by 500,000, while it, on the contrary, has grown – by almost 300,000. It is noteworthy that the increase in this indicator was mainly due to the increase in full employment (219,000), while part-time employment grew by only 70,000. This trend can have a positive effect on the dynamics of wage growth, since full-time positions usually offer a higher level of wages and a higher level of social protection.
The Friday release was important in the context of the key findings of the Bank of Canada, which were announced at the June meeting. Let me remind you that on June 3, the regulator retained all the parameters of monetary policy in its original form. This fact, by and large, was not news for market participants. But the rhetoric of the accompanying statement still caused a certain volatility, and this volatility was in favor of the Canadian currency. First, the central bank said that the negative impact of the pandemic has peaked, although the process of global economic recovery will be slower than earlier forecasts. Secondly, regulator members admitted that the Canadian economy seems to have managed to avoid the worst case scenario – that is, the scenario that was announced in the bank’s monetary policy report in April. Well, the central bank published a forecast regarding the growth of the Canadian economy in the third quarter. According to central bank members, sharp economic growth will follow in the second half of the year, especially if the oil market continues to show growth.
It so happened that the oil market really increased – today, Brent rose to $43 per barrel while WTI grew to $40. This price dynamics was due to the fact that OPEC+ representatives unanimously agreed to extend the current reduction in oil production over the weekend. According to the agreements reached, the current decrease in production by 9.7 million barrels per day will continue at least until the end of July. At the same time, in addition to the main OPEC countries (there are more than 20), Iraq and Nigeria also participated in the negotiations, which previously exceeded their quotas. Representatives of these countries promised that they would “fully comply with their obligations under the restrictions.” The parties also agreed to reduce additional oil production from July to September – this will compensate for non-compliance with quotas in May and June. It also became known that Saudi Arabia has revised its pricing policy, raising July prices for oil exports. We are talking about rising prices for oil supplies for Asian markets, where the increase in the cost of raw materials on average ranged from 5.6 to 7.3 dollars per barrel. Also, the cost of light oil, which is extracted in Saudi Arabia for Asian markets, has risen in price by $6.1. Riyadh surprised market participants – according to general forecasts, the price was supposed to rise by an average of $4 per barrel.
Against the background of this news flow, the oil market has significantly grown, pulling the main commodity currencies. The Canadian dollar was no exception – paired with the US dollar, it settled in the 33rd figure, showing a pronounced downward trend. Given all the fundamental factors (including the vulnerability of the US currency), you can consider short positions while aiming for the bottom of the 33rd figure.
From a technical point of view, the pair is between the middle and lower lines of the Bollinger Bands indicator on the daily chart, which also indicates the priority of a downward movement. The pair shows a bearish trend, which is confirmed by the main trend indicators – Bollinger Bands and Ichimoku, which formed the strongest bearish Parade of Lines signal on all the above timeframes – on D1 all indicator lines are above the price chart, thereby demonstrating pressure on the pair. To determine the main goal of the downward movement, let’s move on to the weekly timeframe: here we focus on the upper border of the Kumo cloud – this is the price of 1.3305. One should be extremely careful at the very bottom of the 33rd sales figure, as the bears may not have enough strength to pull them down to the 32nd price level.