USDCAD could be ready to resume its climb, as price is currently testing the rising trend line on the 1-hour chart and is showing signs of a bounce. Stochastic is moving out of the oversold area, suggesting that the support might hold and that the impulse wave could resume. RSI is also pointing up, which means that buyers are taking control.
If so, USDCAD could move up to its previous highs around the 1.3200 major psychological resistance or higher. The 100 SMA is above the longer-term 200 SMA, confirming that the path of least resistance is to the upside.
However, a break below the trend line could mean that a larger corrective wave is in order. This could spur a pullback to the longer-term area of interest around the 1.2750-1.2800 levels.
USDCAD Fundamental Factors
The PBOC’s decision to devalue the yuan is weighing on the commodity currencies, as this could put downward pressure on China’s export price levels and drag overall commodity prices down. This could also translate to weaker demand for imports, as the lower local currency would make these more expensive.
Apart from that, the US dollar is enjoying strong gains after the PBOC hinted that they could devalue the yuan against the Greenback once more. This led traders to flee to the safe-haven dollar in anticipation of more intervention.
Data from the US economy has also been relatively stronger than expected yesterday, with the preliminary unit labor costs and non-farm productivity numbers beating expectations. This could spur more upward pressure for the dollar as traders continue to price in expectations of a September rate hike from the Fed.
On the other hand, the Canadian dollar is still being dragged lower by falling oil prices and the prospect of further easing from the BOC. Although data came in mostly in line with expectations, traders predict that the downturn in commodities could mean more economic weakness for Canada.
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