The Canadian dollar is on the defensive, despite the slowdown in the Canadian economy and the wait-and-see attitude of the regulator. Despite many fundamental negative factors, the Canadian currency is holding back the pressure of the US dollar bulls, trading in the range of 1.2500-1.2650.
Today, the indicated currency may strengthen its position if the Canadian labor market data is released in the "green zone", which is expected at 12:30 Universal time. We will talk about the prospects of "Canadian Nonfarm" a little later, but for now, we will return to the outcome of the Bank of Canada's September meeting. The central bank kept all the parameters of monetary policy in the same form, but at the same time, voiced quite optimistic rhetoric. This fact pleasantly surprised the USD/CAD bears, in light of the latest data on the growth of the Canadian economy.
It can be recalled that GDP volume in the second quarter (in annual terms) fell to negative values. The indicator declined to -1.1% – the worst result since the second quarter of 2020. This indicator began to gradually decline after a sharp growth in the third quarter of 2020 and then reached negative values in the second quarter of this year. However, representatives of the Canadian regulator did not dramatize the situation. According to them, the negative GDP was provoked mainly by disruptions in the supply chain: the strongest blow was dealt by exports. At the same time, the "main story" remains good. According to the accompanying statement, the Canadian Central Bank still expects that the economy will strengthen in the second half of this year, although another coronavirus wave and continuing supply problems may negatively affect the growth of GDP.
In general, the Bank of Canada's position is similar to the Fed's. Therefore, the Canadian dollar, figuratively speaking, is "competitive" relative to the US dollar. The Canadian Central Bank began to reduce QE in the first half of the year (becoming the first of the G7 central banks to begin gradually curtailing anti-crisis measures), while the Fed only intends to begin normalizing monetary policy. Therefore, the Bank of Canada announced a reduction in the weekly volume of bond repurchases in May under the quantitative easing program from 4 billion Canadian dollars to 3 billion dollars, and from three billion to two in July. Based on general forecasts, the third round of QE reduction will take place at the October meeting (up to $ 1 billion per week). It is also expected that the Canadian regulator will start raising interest rates at the end of next year. Similar market expectations apply to the US Federal Reserve.
The September meeting of the Bank of Canada was a priori supposed to be ignored, since the country is on the threshold of parliamentary elections (September 20). Before such events, central banks, as a rule, refrain from making loud statements or decisions. It can be recalled that three weeks ago, Prime Minister Justin Trudeau announced early elections. At that time, the Liberals led by him were leading, but last week, the Conservatives, led by Erin O'Toole, came out ahead. Currently, the results of the survey show that 33% of active voters will choose conservatives, while the other 30% will choose the ruling liberals. In other words, the intrigue persists, and this fact exerts background pressure on the Canadian dollar. However, this is really a temporary fundamental factor. Experts believe that the results of the parliamentary elections will not have a significant impact on Canada's economic prospects. Therefore, we can use the "politically justified" growth of the USD/CAD pair as an excuse to open short positions.
As for the Canadian Nonfarms, the situation is as follows. According to general forecasts, the Canadian labor market will show positive dynamics. First, the unemployment rate is expected to fall to 7.3% (the downward trend is observed here for the second month in a row). Second, the number of employees should rise by 75 thousand. On the one hand, this is slightly less than the previous month (95 thousand), but on the other hand, the growth in August will be due to full employment – part-time employment will show a more modest result. This is what the preliminary forecasts say. If today's release is in accordance with the forecast (not to mention the "green zone"), USD/CAD bears will get another reason to strengthen their positions.
From the technical point of view, the pair on the daily chart is located on the middle line of the Bollinger Bands indicator. If the price is consolidated below the level of 1.2610, the Ichimoku indicator will form a "Dead Cross" signal, in which the Tenkan-sen and Kijun-sen lines will be above the price, and the Kumo cloud will be below it. This configuration will indicate the priority of short positions up to the lower line of the Bollinger Bands indicator on the same timeframe, that is, to the level of 1.2470. However, it is advisable to consider sales only after the bears have broken through the level of 1.2610.
