USD/CAD

The Canadian dollar has posted slight gains in the Friday session. USD/CAD is trading at 1.2882, up 0.27% on the day. On the release front, Canada releases Ivey PMI, which is expected to improve to 60.2 points. In the US, nonfarm payrolls rebounded with a gain of 164 thousand, although this fell short of the estimate of 190 thousand. Wage growth remained dropped from 0.3% to 0.1%, missing the estimate of 0.2 percent. There was some good news from the unemployment rate, which dropped to 3.9%, beating the estimate of 4.0 percent.

The Canadian economy is performing well, and the markets can expect additional rate hikes this year. That was the hawkish message from Bank of Canada Governor Stephen Poloz earlier this week. Poloz singled out household debt as a significant concern, but said that “since the economy is close to where it belongs, interest rates are headed higher”. The markets are confident that the BoC will press the rate trigger in July, with the odds of a hike currently at 73 percent. Other economic issues that Poloz said are weighing on the Canadian economy include uncertainty over US trade policy and the ongoing NAFTA negotiations. If there is progress to report on the US-China tariff spat or on NAFTA, the Canadian dollar should respond with gains.

As expected, the Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, which said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.

U.S Dollar steady ahead of Jobs Report

USD/CAD Fundamentals

Friday (May 4)

• 8:30 US Average Hourly Earnings. Estimate 0.2%. Actual 0.1%
• 8:30 US Nonfarm Employment Change. Estimate 190K. Actual 164K
• 8:30 US Unemployment Rate. Estimate 4.0%. Actual 3.9%
• 10:00 Canadian Ivey PMI. Estimate 60.2
• 12:00 US FOMC Member William Dudley Speaks
• 15:00 US FOMC Member John Williams Speaks
• 17:30 US FOMC Member Randal Quarles Speaks
• 20:00 US FOMC Member Raphael Bostic Speaks

*All release times are DST

*Key events are in bold

USD/CAD for Friday, May 4, 2018

USD/CAD, May 4 at 9:10 DST

Open: 1.2845 High: 1.2880 Low: 1.2836 Close: 1.2882

USD/CAD Technical

USD/CAD edged lower in the Asian session. The pair posted slight losses in the European session but has recovered. In North American trade, the pair has edged upwards

• 1.2850 has switched to a support role after gains by USD/CAD on Friday
• 1.2943 is the next line of resistance
• Current range: 1.2850 to 1.2943

Further levels in both directions:

• Below: 1.2850, 1.2757, 1.2687 and 1.2590
• Above: 1.2943, 1.3015 and 1.3125

OANDA’s Open Positions Ratio

USD/CAD ratio continues to show little movement this week. Currently, short positions have a majority (60%), indicative of trader bias towards USD/CAD reversing directions and moving downwards.