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The USD/CAD currency pair has strengthened by almost 600 points over the past month, but its downward dynamics was inconsistent (the pair repeatedly showed upward corrective pullbacks). Generally, the downward trend is clearly seen. So now, many experts think, where exactly will the Canadian currency mark the downward border? In any case, the lower the pair declines, the higher the risk of catching the "price bottom". At the moment, the indicated currency pair is testing the middle of the 31st figure – the last time the pair was at such a low was last February, that is, before the "coronavirus crisis". But the annual price minimum was recorded a little earlier, that was in January 2020 (CAD reached the level of 1.2950), due to the growth of the oil market. Currently, the "black gold" market is also showing good dynamics, however, it is incomparable with last year's growth (for example, the price of a barrel of WTI reached $ 63 in December 2019, while now, the price fluctuates in the range of $ 41-43).
On the other hand, currency experts from the Bank of America conglomerate doubt that the Canadian dollar paired with the US dollar will continue to develop its downward dynamics. In their opinion, the oil market has already used up its potential to further rise, while the general optimism regarding the softening of quarantine measures is disappearing. Moreover, COVID-19 continues to spread globally – local outbreaks of the disease are recorded in many countries of the world (in particular, in Spain, Australia, Germany), while Latin America, India, and the United States continue to report new anti-records. Analysts also point out the weak dynamics of recovery processes in Canada. The key indicators will either come out in the negative zone or at the level of weak forecast values.
For example, July inflation fell short of the forecast values. On a monthly basis, the general consumer price index showed positive dynamics for two months - in May and June. But last month, the index fell back to zero. Annually, the indicator also dropped to almost zero (0.1%), while core inflation fell into a negative zone altogether – the core index slowed to -0.1% on a monthly basis. The structure of these indicators suggests that tourism remains the main support of activity. For example, air travel prices fell by 8.6%, and housing prices fell by 27%.
In my opinion, the Canadian dollar is closely approaching the border of the downward trend in the long term. But in the medium term, the bears of USD/CAD have not yet worked up all their potential, at least through testing the 30th figure. First, the recent events on the oil market suggest that "black gold" will show positive dynamics at least in the coming days.
So, yesterday, it was reported that 80% of oil production in the Gulf of Mexico was suspended due to the approaching tropical storm "Laura", which should reach the coast today - it was listed in the third category, as a hurricane. Before that, a storm had already swept through Haiti, where it took the lives of nine people and destroyed many buildings. According to preliminary estimates of analysts, production losses could exceed 1 million barrels per day. In addition, according to the latest report from the American Petroleum Institute (API), US stocks of "black gold" and gasoline are declining. Based on their report, crude oil reserves declined by 4.5 million barrels, reserves in Cushing (the base for determining the price for WTI) by 0.64 million barrels, while gasoline reserves by 6.3 million barrels. Amid such news, the oil market rose: the price of a barrel of Brent crude oil rose to $ 46.50 and WTI crude to almost $ 44. Against this background, the Canadian dollar, against the US dollar, strengthened to the level of 1.3130.
At the moment, the USD/CAD pair is showing a correction ahead of Jerome Powell's speech tomorrow in Jackson Hole. It is worth noting that almost all dollar pairs are waiting for this event, as Powell can either let the dollar fall or support it. In particular, there are rumors in the market that the Fed chief will announce changing its inflation target to the average level. In this case, the Central Bank will return to the issue of raising the rate only after inflation rises above the two percent level. If Powell will not talk about this, the dollar will be under strong pressure. However, if he limits himself to the previously said issue, the US dollar bulls may show character again, including in a pair with the Canadian currency.
Thus, at the moment, it is better to take a wait-and-see attitude, despite the downward outlook for the pair. In the medium term, we can consider short positions to the support level of 1.3105 (the lower line of the Bollinger Bands indicator on the daily chart), but only based on the results of Jerome Powell's speech tomorrow.
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