USDCAD in our view has limited downside and is likely to go higher in the coming weeks. Here we will look at the Bank of Canada meeting which is this week, also other big fundamentals in relation to the pair and the important support and resistance levels to look out for below:
Bank of Canada to Hike Rates By 75bps
The Bank of Canada is set to raise its overnight rate by 75 basis points this month but after this hike, we would expect hikes to slow up and the Bank Of Canada will not keep pace with the Fed why?
The BoC will halt earlier than the Fed, pausing throughout next year in part as deeply indebted Canadian households are more vulnerable to higher borrowing costs.
“We now look for the Bank of Canada to hike to 3.25% by October 2022, with a 75 basis point hike in July followed by a pair of 50 basis point hikes in September and October,” noted Robert Both at TD Securities. He added that “Household leverage makes it unlikely that the Bank will be able to move as far as the Fed.”
A hike as expected will not firm the CAD and any concern in the statement about household debt would be bearish.
Big Fundamentals to Drive the USD/CAD Higher
The big picture for the CAD is lower as commodity prices fall and the global economy slows.
Below we can see the fall in all major commodity indexes and we can also see the fall in crude oil which has just started in our view against the US Dollar Index DXY inverted. Commodities are priced in USD and dollar strength, as well as a slowing economy, will weigh on crude oil and all commodities.
Are we going to see a global recession?
The view of TS Lombard below and chart…
“As the macro narrative shifts from worries about protracted inflation to mounting fears of a “hard landing”, the markets remain caught between a hawkish Fed and a deteriorating global demand outlook With the path to a US “soft landing” getting narrower, the Chinese economy stuck in low gear and stagflationary dynamics engulfing the euro area, a global recession is probably already in the pipeline.”
The USD is bullish on all the commodity currencies as its supported not only by an aggressive Fed in terms of rate hikes but also a slowing global economy or recession historically firms the USD
Below are the daily and monthly charts with our views in terms of support resistance and a possible upside target.