The USD/CAD still fighting with 1.3500 mark – a tug of war?

May 15, 2019

By Admiral Markets

Economic events calendar

Source: Economic Events May 15, 2019 – Admiral Markets’ Forex Calendar

The focus for the USD/CAD still lies on the 1.3500 mark, and a significant break higher couldn’t yet be had. There are several reasons for this: for example, last Friday, Canada posted the largest one-month gain in net jobs on record, countering some of the rhetoric we’ve seen from the Bank of Canada, which fully abandoned its bias towards raising interest rates during April 24th’s meeting.

But the US dollar also faced some headwinds over the last few days: after the trade war with China further escalated, China announced a plan to raise tariffs on $60 billion of US goods beginning June 1, halting the purchase of US agricultural products and energy, reducing orders from Boeing, restricting US service trade, and especially discussing the possibility of dumping US Treasuries – as such, the US dollar saw some heavy selling this week.

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This resulted out of the fact that market participants now see an increased chance of the Fed cutting rate by December 2019, with probability being over 70% according to the Fed Watch Tool.

Since a trade war escalation will potentially hit a commodity dependent currency like the CAD a bit more heavily than others, we still see a serious chance of a coming break above 1.3500 in the USD/CAD.

Today, a potential driver can be found coming from the Canadian inflation data. It came in at 1.9% last March, up from 1.5 percent in February, matching market expectations and showing the highest inflation rate since December. A down tick in this area, if it comes in below market expectations of 2%, would leave the CAD vulnerable to a drop, and push the USD/CAD for a stint higher.

In general, as long as we trade above 1.3250/80 on a daily time-frame, the USD/CAD stays bullish, above 1.3500 with an initial target around 1.3670.

USD/CAD index daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on USD/CAD chart (between February 18, 2018, to May 14, 2019). Accessed: May 14, 2019, at 10:00pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the USD/CAD increased by 9.4%, in 2015, it increased by 19.1%, in 2016, it fell by 2.9%, in 2017, it fell by 6.4%, in 2018, it increased by 8.4%, meaning that after five years, it was up by 28.4%.

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