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The Canadian dollar has recently been showing truly combative qualities, restraining the attack of the US currency. And although the US dollar has been strengthening throughout the market, its Canadian counterpart has been strengthening its position for the second week. Since September 30, the USD/CAD pair has been within the downward trend, declining from the level of 1.2765 to 1.2530. But, the Canadian dollar has a certain immunity as it is the only one among the main major currencies that effectively opposes itself to the US dollar. And today, a kind of "battle" will resume with a new power – key data in the labor market will be published both in the United States and Canada.
In my opinion, the resilience of the Canadian dollar is primarily due to two main factors. First, the Bank of Canada's hawkish attitude, and second, the oil market's growth. These two are confidently supporting the CAD, allowing itself to go against the general mood in the market.
Tiff Macklem voiced rather optimistic rhetoric at the last BoC meeting that was held on September 8, which suggested that the Central Bank will continue to follow the set course. In general, the position of the Bank of Canada is similar to that of the US Federal Reserve. Therefore, the Canadian dollar and shows "competitiveness" relative to its US counterpart. The Canadian Central Bank began to cut QE back in the first half of the year (becoming the first of the G7 Central Banks to start gradually phasing out anti-crisis measures), while the Fed intends to begin normalizing monetary policy only in November.
As for the interest rate fate, the Bank of Canada may even get ahead of its southern neighbor. This scenario is admitted by economists interviewed by Reuters – 34 experts were confident that the Canadian Central Bank will tighten monetary policy in the fourth quarter of next year. Moreover, analysts at the Wells Fargo conglomerate (which is part of the so-called "big four" US banks) stated that the Canadian central bank will raise the rate by 25 basis points in July next year, and by another 25 points at one of the last meetings in 2022. The experts also published their forecasts regarding the prospects for the stimulating program. They suggested that the Bank of Canada will reduce QE to 1 billion at the next meeting (October 27), and will announce the end of the program at the first meeting next year (January). So, according to analysts of the American conglomerate, the Canadian QE program will be completed in early 2022, and the rate will be raised six months later.
A similar position was voiced by some other experts. In this context, it should be noted that each key release will now be viewed through the prism of the prospects for tightening monetary policy by the Bank of Canada. That is why today's publication may provoke strong volatility in the USD/CAD pair.
According to general forecasts, the unemployment rate in Canada will fall to 6.9%. This indicator has been steadily decreasing for the past three months, after the spring growth. In turn, the number of employees should grow by 60 thousand. This is not a bad result, especially since the component of full employment should double the component of part-time employment.
If today's data comes out at least at the forecast level, the Canadian dollar will receive significant support by defining new downward targets for itself in the medium term.
Meanwhile, the oil market certainly supports the Canadian currency. The cost of a barrel of WTI mark reached $ 79.5 today, which is the highest value since October 2014. According to analysts, oil prices will continue to rise, given the results of the last OPEC + meeting.
Thus, fundamental signals allow for further development of the downward trend. However, it is advisable to open trading positions at the beginning of next week, when the passions "settle down" about today's releases. It can be recalled that Canadian and American Nonfarm data will be published simultaneously. Both the Bank of Canada and the Federal Reserve demonstrate a "hawkish" attitude, so today's publications may provoke "emotional volatility", increasing the risk of false price movements.
From a technical point of view, the USD/CAD pair on the daily chart is located between the middle and lower lines of the Bollinger Bands indicator, as well as under all the lines of the Ichimoku indicator, which indicates the priority of the downward movement. The first support level (the downward target) is the level of 1.2500 – this is the lower line of the Bollinger Bands on the daily chart.
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