USD/CAD Rate Could Face Record Lows Following Canada GDP

USD/CAD continues to follow the April range despite the fact that the Bank of Canada’s (BoC) Governor Stephen Poloz embraces timid forward guidance ahead of his departure, but Canada’s quarter 1 Gross Domestic Product (GDP) report may impact the exchange rate as the update is expected to show the greatest contraction since the data series started in 1961.

USD/CAD Rate Could Face Record Lows Following Canada GDP

USD/CAD seems, by all accounts, to be stuck in a narrow range as Poloz defends the response to the Coronavirus, with the central bank head insisting that “a well-functioning financial system is a necessary precondition for effective monetary policy.”

Poloz said that the BoC is “focusing our efforts on making sure the economy has a solid base for recovery” as the central bank increase its balance sheet, but advised that “the economy will need significant monetary stimulus in the rebuilding stage” as he prepares to step down in June.

It is not yet clear if the BoC under Tiff Macklem will deploy progressively more unconventional tools over the coming months as Canada’s GDP report is foreseen to show a 10% decrease in the growth rate, and the central bank may feel obligated to additionally bolster the economy as “there will be lessons to learn from how supply chains evolve” following the pandemic.

In turn, the BoC may keep endorsing hesitant forward guidance at the next meeting on the 3rd of June, however, the Governing Council may do a cautious approach for the foreseeable future as the central bank gets ready to launch the Provincial Bond Purchase Program alongside the Corporate Bond Purchase Program.

All things considered, the CAD may encounter headwinds throughout 2020 as the BoC keeps the door open to implement more non-standard measures, and the wider outlook for USD/CAD stays useful as the exchange rate breaks out of the descending channel from earlier this year.

In any case, USD/CAD may keep on consolidating over the rest of the month as it safeguards the April range, with the unsuccessful attempt to test the April low (1.3850) bringing the May high (1.4173) on the radar.

USD/CAD Daily Rate Chart

Chart data as of the 26/05/20 from https://www.tradingview.com

Keep in mind, the short-term rally in USD/CAD appeared following the unsuccessful attempt to break/close below the Fibonacci overlap around 1.2950 (78.6% expansion) to 1.2980 (61.8% retracement), with the yearly opening range featuring a comparable dynamic as the exchange rate neglected to test the 2019 low (1.2952) during the first full week of January.

The change in USD/CAD behavior may continue in 2020 as the exchange rate breaks out of the range-bound price action from quarter four of 2019 and clears the October high (1.3383).

However, the price action of late warns of range-bound conditions as the break of the descending channel formation neglected to produce a test of the April high (1.4298), with the recent fall in USD/CAD faltering ahead of the April low (1.3850).

In turn, USD/CAD may trade inside an increasingly more defined range as it keeps on holding above the Fibonacci overlap around 1.3810 (50% retracement) to 1.3840 (100% expansion), with a move above the 1.4010 (38.2% retracement) to 1.4040 (23.6% retracement) region bringing the 1.4130 (100% expansion) to 1.4150 (161.8% expansion) area on the radar as it mainly lines up with the May high (1.4173).

James Stewart

Fundamental Analyst for Global Markets

James has over 20 years of experience trading FX, cryptocurrencies and investments products for a range of investment banks and brokers

He spent the last 10 years analyzing and writing about foreign exchange, crypto-currencies and the global financial markets

He has also spoken at a range of conferences around the globe on various financial topics.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store