USD/CAD May Rally Ahead of Support Level

By: Eddy Peng Jul 4, 2018
Canadian Dollar resumes to strengthen after data told Markit Manufacturing PMI for June increased to 57.1 from 56.2 last month and China notes that Yuan will not be used as a weapon in trade war. It rebounded significantly after two-week’s surge in the greenback, and extended to rise by 0.35 percent to settle at C$1.31372. A gauge of manufacturing activity in Canada rose to 57.1 in June, the highest level since data began in late 2010, according to HIS Markit. The record high suggests Canadian economy remains in an expanding session and triggers a currency reversal over the near term. According to Bloomberg, the widening yield spread between U.S. and Canada 2-year sovereigns has been continuously putting pressure on the Loonie for a considerable period of time, while the July 11 meeting is live for a rate hike causing markets to price in an 84% probability of a 25bp Bank of Canada hike. ACY-CAD-US-CA-2-Year-Yield-Spread-040718 USD/CAD May Rally Ahead of Support Level

Chart 1: CAD & US-CA 2 Year Yield Spread

On a daily chart, USD/CAD is right in front of the support level placed by March 19’s high, which may curb the enthusiasm of CAD bulls over the short term. A rebound may lead the pair towards the upper line of the ascending channel. Otherwise, a breakout will cause further gain in CAD. ACY-USDCAD-Daily-040718 USD/CAD May Rally Ahead of Support Level

Chart 2: USDCAD Daily

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