23.07.201909:53 Forex Analysis & Reviews: USD / CAD. Canadian disappointed with inflation, but may return to 1.3010

At the end of last week, the Canadian dollar paired with the US currency, updated the annual minimum, going down to the base of the 30th figure. However, it could not overcome the key support level of 1.3010, which corresponds to the bottom line of the Bollinger Bands indicator on the daily chart. After pushing away from this target, the price went up sharply enough, and in just a few trading days, the "Canadian" lost almost 150 points. The ambiguous situation in the oil market, the strengthening of the US dollar and the disappointing Canadian macrostats - all these factors put pressure on the loonie, after which the currency succumbed to the pressure of the greenback. The question now is whether a pair of USD/CAD has formed a price bottom at the base of the 30th figure, or are we now dealing only with price correction after a prolonged decline from the June peak of 1.3430?

The immediate catalyst for Friday's growth of USD/CAD was the release of data on the growth of retail sales in Canada. The indicator of consumer activity of Canadians was unexpectedly disappointing, being below the forecast levels. With the forecast of growth to 0.3%, the indicator fell into the negative area, reaching the level of -0.1% for the first time in four months. The core index also came out weaker than expected - for the first time since January of this year, it "dived" under the zero mark, dropping to -0.3%. The structure of the indicator suggests that this dynamic was primarily due to a decrease in the demand for food and alcohol.

And here, it is worth recalling that the growth rate of Canadian inflation in June slowed down significantly. After a steady growth in May, the figures went out in the "red zone", for the most part not reaching the predicted values. In particular, the consumer price index excluding energy and food prices decline to 2.0% in annual terms after the strongest increase in the indicator over the past 7 years. On a monthly basis, the indicator showed a negative trend in the same way, dropping to zero. Given the fact that most experts expected growth rates (2.6% y / y and 0.1% m / m), the published figures put significant pressure on the Canadian dollar. By the way, the general consumer price index was also disappointing: on a monthly basis, it fell into the negative area (for the first time since last December), and in annual terms, returned to the two-percent mark. Thus, interrupting the 4-month growth cycle.

In this context, it is necessary to recall the results of the July meeting of the Bank of Canada, at which the head of the Canadian Central Bank voiced quite alarming signals that indicate that at the end of this year, Stephen Poloz may follow the Federal Reserve. First of all, the head of the regulator was concerned about the external fundamental background. According to him, the consequences of the global trade war are becoming more tangible - in particular, the forecast for GDP growth in the global economy for the current year was reduced to three percent (from the previous value of 3.2%), for the next year - to 3.2% (from previous 3.3%). This fact, according to members of the Canadian regulator, will also affect the dynamics of Canadian GDP. So, the third quarter promises to be less successful - the Canadian economy in this period should grow by only 1.5%. A significant increase in inflation in Canada in May was due to temporary factors - at least, members of the Canadian regulator are sure of this. According to them, in the current quarter, inflation will drop to 1.6%. The dynamics of the June consumer price index suggests that the concern of the Canadian Central Bank is justified. In general, as noted by the head of the Bank of Canada, the further escalation of trade conflicts will be the greatest risk for both the global and the Canadian economy.

Despite some progress in negotiations between Washington and Beijing, the parties are in no hurry to conclude a trade deal. According to the Chinese press, the American delegation, will "possibly" visit China by next week only - for the first time after the end of the G-20 summit. The visit will be at a high representative level - US Trade Representative Robert Lighthizer and Finance Minister Stephen Mnuchin will hold a personal meeting with Vice Premier of the State Council of the People's Republic of China Liu He.

In the meantime, the negotiation process is underway, while protective duties continue to operate, having a significant impact on the global economy. Therefore, the pessimistic forecasts of the Canadian regulator regarding the weak growth of the country's GDP and inflation are likely to come true, increasing the likelihood of a "preventive reduction" of the interest rate. The Bank of Canada may decide to take this step in September or October, especially if inflation continues to slow down.

Thus, a weak inflation growth in June did not allow bears of USD/CAD to decline below 1.3000. This resistance level is unlikely to be "in the teeth" of the sellers for the pair in the near future - at least until the Fed meeting (July 31). At the same time, if American statistics (US GDP) disappoint on Friday, the Loonie can return to the 30th figure again and even test the support level of 1.3010. In other words, apparently, the pair has formed a price bottom, to the border of which it can still return, but its breakdown looks unlikely. In addition, if the data on the growth of the American economy come out better than expected, the pair will continue to grow to the level of 1.3220 (Kijun-sen line at D1). In general, USD/CAD will follow the US currency, as the Canadian dollar has lost the ability to "independent" growth.