USD/CAD Targets Critical Support as Canada’s Trade Balance Surges

08/07/2024

2 minutes read

2024.08.07 02:49

The USD/CAD pair is declining due to the anticipation of aggressive rate cuts by the US Federal Reserve, which could narrow the interest rate differential between the US and Canada
Canada’s better-than-expected trade surplus in June, driven by increased crude oil and gold exports, further strengthened the Canadian dollar.
BoC summary of deliberations and job data releases expected to provide insights into the central bank’s views and the employment situation.

continues to decline in the US session after failing to secure acceptance above the 1.3900 level.

The Canadian Dollar stands to benefit significantly from the aggressive rate cuts now anticipated by the US Federal Reserve. Just two weeks ago, the Bank of Canada was addressing concerns about a rate differential with the US. However, with current market expectations, this issue seems less pressing as recession fears take precedence.

The Bank of Canada has been contending with slow economic growth and rising unemployment, leading it to initiate rate cuts. Markets are now anticipating 75 basis points (bps) in cuts from the BoC and 100 bps from the US Federal Reserve. The BoC has already implemented 50 bps in cuts, so if market predictions hold true, the rate differential could narrow to just 25 bps by the end of the year.

The Canadian Dollar also gained a modicum of strength this afternoon thanks to a better-than-expected trade balance print. Statistics Canada revealed that the Canadian economy recorded a surprising trade surplus of C$638 million ($461 million) in June, driven largely by a surge in shipments from the recently expanded Trans Mountain Pipeline.

A significant increase in exports further bolstered overall export figures. Combined with energy product shipments, this growth helped exports surpass imports for the first time in four months, Statistics Canada reported.

Analysts surveyed by Reuters had predicted a C$1.84 billion trade deficit. Additionally, May’s trade deficit was revised down to C$1.61 billion from an initial estimate of C$1.93 billion.

Canadian Data is Key

This week features a scarcity of high-impact data from the US, placing the spotlight on geopolitical developments and Canadian economic updates.

Tomorrow, the Bank of Canada (BoC) will release its summary of deliberations, offering insights into the Central Bank’s perspectives.

On Friday, key job data will be released, crucial in light of the recent rise in the unemployment rate over the past few months. Economic Calendar

Technical Analysis

From a technical standpoint, USD/CAD briefly climbed above the 1.3900 resistance before retreating. This movement, combined with a shooting star candlestick close on the daily chart yesterday, suggests further downside potential.

Immediate support is at 1.3740, with the 100-day and 200-day moving averages providing additional support at 1.3680 and 1.3650, respectively.

If the pair moves higher, it will face resistance at 1.3854, followed by the significant 1.3900 level.