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The increasing likelihood of Donald Trump winning the US presidential election has led to a sell-off in commodity currencies. Protectionist policies will hurt China. Meanwhile, the Bank of Canada is considering cutting interest rates. Let’s discuss these issues and make a trading plan for the coming week. US Dollar/Canadian Dollar Husband.
The article covers the following topics:
Key points and highlights
- The USDCAD currency pair recorded an increase in 9 out of 10 trading sessions.
- The rise is based on the decline in commodity markets due to Trump’s trade.
- The Bank of Canada’s rate-cutting cycle is very likely to continue.
- The Bank of Canada meeting could push the USD/CAD pair towards the 1.395 level.
Canadian Dollar Daily Fundamental Forecast
The Canadian dollar has fallen against its US counterpart in 9 out of 10 trading sessions due to a double whammy. On the one hand, US Dollar/Canadian Dollar Trump’s trades are holding the bears back. On the other hand, markets are waiting for the second easing from the Bank of Canada in the past two months. The pair is at risk of breaking out of the medium-term trading range 1.36-1.38 and starting a new trend. Is this the right time to buy?
If gold and bitcoin are the main beneficiaries of Donald Trump’s return to the White House, most commodity assets and commodity-linked currencies are among the casualties. Oil prices have fallen to six-week lows amid expectations of a slowdown in the Chinese economy, while forex traders are moving away from the Australian, New Zealand and Canadian dollars. Trump has promised to raise tariffs on imports from China to as much as 60%, further hurting the world’s largest consumer of commodities.
Meanwhile, the Bank of Canada has decided to continue its monetary easing cycle. In June, it became the first G7 central bank to cut its overnight interest rate to 4.75%. Three-quarters of Reuters economists and all 14 economists surveyed by the Wall Street Journal expect the cycle to continue on July 24, with borrowing costs falling 25 basis points to 4.5%. The futures market is pricing in a 93% chance of such an outcome. The rumours are pushing USD/CAD higher.
Canadian Economic Indicators
Source: Bloomberg.
The Canadian economy is weak. In June, the unemployment rate jumped 0.2 percentage points to 6.4%, the highest level since January 2022. Employment unexpectedly fell by 1,400 jobs versus expectations for a gain of 25,000, and core inflation rose at or below 2% for the fourth straight month. In addition, the unpleasant surprise of a 0.8% month-over-month drop in retail sales in June was another grain of salt for the Canadian dollar.
Bank of Canada Governor Tiff Macklem has expressed confidence in a soft landing for the country’s economy. However, that would require overnight rate cuts at nearly every remaining central bank meeting through 2024 in September, October and December. Still, only four of 14 Wall Street Journal economists expect the BoC to take four more steps on its monetary expansion path before the end of the year, including the July meeting.
Daily Trading Plan for USDCAD
future US Dollar/Canadian Dollar The pair will depend on the signal that the Bank of Canada will provide on July 24. An overnight rate cut coupled with a neutral speech by Tiff Macklem could trigger a sell-off on facts after buying on rumours. Conversely, signs of weakness in the economy and a continuation of the cycle have the potential to accelerate the rise towards 1.395, especially with the Trump trade continuing. However, the balance of power could shift as the US July labour market report approaches.
USDCAD currency pair real time price chart
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