The USD/CAD has been consolidating since hitting a high on the year near 1.28. It has fallen to about 1.2360 and has been trading sideways since. We can see in the 4H chart a descending triangle that was broken. However, price failed to extend higher and continues to pressure the triangle support. This week, USD/CAD was attempting to advance above 1.25, but today’s (3/3) Canadian GDP data gave the CAD some strength across the board and the USD/CAD fell back below 1.25.
According to Statistics Canada, Canadian GDP in December grew 0.3%, rebounding from a -0.2% print in November. Forecasts called for a reading around 0.2%. So, we have growth that was barely better than expected in December, though some revisions made the previous months look better. Oct-Dec (Q4) growth came in at an annualized rate of 2.4%. Q3 growth was revised up to an annualized rate of 3.2% from 2.8%.
Still, we are seeing some decline in growth and until we can get strong inflation and 3-4 months of steady growth similar or better than this month, the BoC will still be dovish, and the loonie should be weak outside of the intra-session reaction.
(click to enlarge; source: forexfactory.com)
Here’s a breakdown of this January’s GDP contributions in Q4:
(click to enlarge; source: StatCan)
The reaction to this data should not be strong enough to push below 1.2360 although it can bring the pair back in this 1.2360-1.24 area. A break below 1.2360 would likely require a disappointing NFP report on Friday from the US. Therefore, if USD/CAD tests the 1.2360-1.24 area, we should be ready for a near-term rally back towards the 1.25 area if not higher. The bullish outlook has the 1.28 handle in sight, with risk of extending to the 1.30-1.3060, 2008-2009 highs.
Now, if USD/CAD does break below 1.2360, let’s say due to a weak US NFP, then, it opens up the 1.21 and 1.20 levels, which are common prices during a couple of previous consolidation ranges.in January. The bearish outlook can strengthen if a pullback fails to push above 1.25.
Previous post by Author: NZD/USD Testing February’s Channel Support