Canadian Dollar Strengthens as Hiring Rebounds In June

Canadian Dollar Strengthens as Hiring Rebounds In June
July 19, 2019

 

The Canadian dollar weakened against the US dollar in the Asian and European session yesterday but reversed trend in the US session on lower Treasury yields and dovish comment made by the New York Federal Reserve President John Williams. After opening at 1.3041, the USD/CAD pair rose to 1.3075 before dropping sharply to a low of 1.3016. The currency pair continues to trade near its daily low.

The Canadian dollar started declining in the Asian session yesterday due to weakness in crude oil prices. Since Monday, oil has lost nearly 8% and is on course to record its worst performance since the end of May. The possibility of a renewed US-China trade war and increase in the US stockpiles was mainly responsible for the crude oil price decline. Notably, Barclays slashed its 2019 Brent and US West Texas Intermediate (WTI) price outlook by $2 to $69 per barrel and $61, respectively. It also slashed its 2020 forecast for Brent by $6 to $69 and by $5 to $62 a barrel for WTI. The Barclays report also states that consumption growth could decline on a y-o-y basis to over 1 million barrels per day in 2019.

The US West Texas Intermediate crude futures declined $1.48, or 2.6% to close at $55.30.  Brent crude futures dropped $1.94, or over 3%, to end the trading session at $61.72 a barrel.

As crude oil is one of the main export commodities of Canada, the weakness in crude oil and gloomy outlook by Barclays encouraged speculators to sell the Canadian dollar.

However, the loonie’s decline did not last long as the ADP (Automatic Data Processing) Canada National Employment Report revealed that the Canadian economy added 30,400 jobs in June, following the loss of 36,700 jobs in the earlier month. An increase in construction jobs was primarily responsible for the net addition of jobs.

The USD/CAD pair’s reversal was further cemented by news reports that the New York Federal Reserve President John Williams is in favor of slashing benchmark interest rates at month-end. Specifically, Williams opined that Central bankers need to act faster when the prevailing benchmark rates are low and the economy is expanding at a slower pace.

In a note to clients, Morgan Stanley analysts stated that the market has a bearish view of riskier assets because of disappointing US earnings reports and unresolved risks related to global trade.

The analyst’s note said, “All this gives strong reason for the current internationally-focused Fed to consider cutting rates by 50 bps at the end of the month. A 50 basis point cut would weaken the dollar sharply, particularly against high-yielding currencies.”

The geopolitical uncertainty and Fed rate cut expectations are anticipated to keep the greenback bearish in the short-term.

The historical price chart indicates that the currency pair has broken below its 50-day moving average. Furthermore, the momentum indicator is making new lows. As a result, we can expect the USD/CAD pair to remain bearish in the short-term.

CAD - techncial analysis - 19th July 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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