The Canadian dollar, paired with the US currency, has strengthened by 500 points over the past two weeks. If we consider a wider time range, we can talk about the 1000-point strengthening of the “loonie”, which was trading at the level of the 45th figure in mid-March. To date, the USD/JPY pair is testing the 34th figure, showing a bearish mood. Yesterday’s meeting of the Bank of Canada allowed sellers to continue to decline and only the general strengthening of the dollar got on the way to the support level of 1.3450 (the lower line of the Bollinger Bands indicator on the daily chart).
It is worth noting that before the June meeting, the pair’s traders were clearly nervous – the pair jumped by almost 100 points, as rumors spread around the market that the Canadian regulator would allow the introduction of negative rates in the event of an aggravation of the economic crisis. This scenario initially looked very implausible, because, firstly, none of the Central Bank members allowed this option during their last speeches, and secondly, Stephen Poloz would hardly have decided on such a step at this meeting, which was for him last in the post of head of the Central Bank. To conclude the June meeting, he handed over the reins to Tiff Macklem, who, in the general opinion of experts, will continue the policy of his predecessor, at least initially.
Despite this fact, the controversial rumors before the meeting did their job: the price of the Canadian dollar declined, so that it will rise again following the results of the June meeting. Such price dynamics led to the fact that the USD/CAD pair closed yesterday’s trading almost at the same positions where it started. That is, by and large, the Bank of Canada did not become a catalyst for the growth of the Canadian dollar, but did not act as an anchor for the “loonie”.
Among the positive aspects, the following can be highlighted. First, the Central Bank said that the negative impact of the pandemic has reached its peak, although the process of global economic recovery will be slower, relative to earlier forecasts. Secondly, members of the regulator recognized that the cCnadian economy, apparently, managed to avoid the worst scenario – that is, the scenario that was announced in the April report of the Bank on monetary policy. Well, lastly, the Central Bank’s forecast for the growth of the Canadian economy in the third quarter was published. According to the regulator’s members, a sharp economic growth will follow in the second half of the year, especially if the oil market continues to show growth.
The “hawkish” comments of the Central Bank were leveled out by the “dovish”: in particular, the regulator announced that he would adhere to a policy of aggressive asset purchases until the economy returned to the path of sustainable recovery, while real GDP in the second quarter was most likely decrease by another 15-25%. In addition, Poloz has traditionally been preoccupied with inflationary processes. According to his forecasts, temporary factors will keep CPI inflation below the target range in the foreseeable future.
Following the meeting, the Bank of Canada decided to reduce the frequency of repo transactions to one per week. At the same time, the Central Bank warned that they were ready to adjust their programs “if necessary.”
As you can see, the Canadian regulator was very optimistic about the long-term prospects, but he was skeptical of the idea of a quick economic recovery, allowing the revision of current programs. That is why the key macroeconomic indicators of Canada will play a special role for the USD/CAD pair.
Today’s correction of the pair looks quite logical, given the general strengthening of the American currency. But the “Canadian Non-farms”, which will be published on Friday, may give the pair a new downward impulse that will allow USD/CAD bears to consolidate in the 34th figure. According to preliminary estimates, the unemployment rate will jump to 15% (in April, this indicator reached 13%). The growth rate of the number of employees may have declined by 500 thousand, while the negative dynamics was more significant in April (-1 million 900 thousand). The forecast itself is negative, but if the real numbers turn out to be better than the forecasts, the bears will get a reason to restore the downward movement.
The technical picture of USD/CAD also favors the downward movement. On the daily chart, the pair is located under the Kumo cloud of the Ichimoku Kinko Hyo indicator and under all its lines. The bearish signal “Parade of Lines” indicates the potential for a further decline in prices. In addition, the pair is located between the middle and lower lines of the Bollinger Bands indicator. This also indicates the bearish mood of traders. Now, for the nearest goal of the downward movement, we can consider the level of 1.3450. This is the support level and the bottom line of the Bollinger Bands indicator on the D1 timeframe. Stop loss can be placed in the area of resistance level and this is the Tenkan-sen line (price 1.3730).