Loonie Susceptible to Canadian Jobs Report & Fed Chair Powell

USD/CAD ANLAYSIS & TALKING POINTS

• OPEC+ production cuts keep CAD elevated.
• Canadian jobs report, ISM manufacturing PMI and Fed speak under the spotlight later today.
• Falling wedge support break under threat.

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CANADIAN DOLLAR FUNDAMENTAL BACKDROP

The Canadian dollar continues its ascendency against the USD reaching levels last seen in late September. Despite annualized GDP figures significantly missing estimates yesterday alongside a fall in average weekly earnings, the loonie rallied. The upside support was largely due to OPEC+ announcing deeper voluntary cuts extending through to the end of the first quarter of 2024. Although this underwhelmed crude oil markets, the surplus forecast for 2024 will likely be reduced by this decision that could buoy Canadian crude oil prices and aid the local currency.

Money markets have ramped up bets of interest rate cuts by the Bank of Canada (BoC) (see table below) and cumulative rate cuts by December 2024 now hover around the 100bps mark. Later today, Canada’s jobs report will be releases (see economic calendar) and should actual data fall in line with expectations, the recent dovish repricing may be extended considering the tight labor market conditions we have been accustomed to of recent.

BANK OF CANADA INTEREST RATE PROBABILITIES

Source: Refinitiv

USD/CAD ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX Economic Calendar

From a US perspective, the ISM manufacturing PMI release will come into focus after dropping off sharply in October. Expectations are to remain within contractionary territory (below 50). The focal point for the trading day today will come via Fed Chair Jerome Powell who will speak later this evening with markets closely monitoring any shift in tone. The prior address reiterated that the Fed is not looking to cut rates anytime soon, so it will be interesting to see whether or not he sticks with this narrative.

TECHNICAL ANALYSIS

USD/CAD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily USD/CAD price action shows the pair testing falling wedge support (dashed black line) with the 200-day moving average (blue) not too far away. I do foresee a USD pullback higher but a confirmation break below 1.3500 could negate this outlook.

Key resistance levels:

• 1.3700/Wedge resistance
• 50-day mA
• 1.3600
• 1.3575

Key support levels:

• Wedge support
• 200-day MA
• 1.3500

IG CLIENT SENTIMENT DATA: BEARISH

IGCS shows retail traders are currently net LONG on USD/CAD, with 51% of traders currently holding short positions (as of this writing).

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Contact and followWarrenon Twitter:@WVenketas