- The Canadian dollar finished last week significantly lower as USD/CAD surged to last trade at 1.2366.
- The decline in the Canadian dollar/rise in USD/CAD (blue) validated the long-term support zone (blue).
- Previously oversold conditions are now being resolved (blue). The scope for further upside for the Canadian dollar/downside for USD/CAD is now further diminished.
- From the Federal Reserve Open Market Committee’s (FOMC) latest Monetary Policy Statement, released last Wednesday, “Progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened.”
- In actual fact, and similar to the U.S., Canada is also experiencing the impact from higher prices for shelter and vehicles, which in turn led to slower activities
- China May retail sales +12.4% y/y, vs +17.7% y/y in April.
- Eurozone consumer price index (CPI) eased to +0.3% m/m in May; April was +0.6%.
- The prospect of the U.S. Federal Reserve ending their monetary stimulus earlier sent the U.S. dollar higher and commodity prices generally lower, taking the Canadian dollar with it. The latest batch of mixed to disappointing U.S. economic data, and recent Chinese measures to curtail commodity speculation might also be hurting risk appetite.
- These macro headwinds for the Canadian dollar are taking place alongside long-term price patterns that suggest the scope for further upside for the Canadian dollar/downside for USD/CAD is now further diminished.