USD/CAD : Employment Data
(Tue, 5 Jan 2021). It proved to be a mixed day of trade for equity markets as traders mulled global coronavirus developments and turned their attention to the upcoming US Senate run-off elections in Georgia.
Australia’s ASX 200 index slipped marginally lower while Japan’s Nikkei 225 fell 0.37%. China’s CSI 300 index surged 1.91% as market participants cheered the decision by the New York Stock Exchange not to delist three Chinese telecom companies.
In FX markets, the cyclically-sensitive AUD and NZD largely outperformed, while the haven-associated USD and JPY lost ground against their major counterparts. Gold and silver crept higher despite yields on US 10-year Treasuries nudging up 1 basis point.
Looking ahead, German employment data headlines the economic docket alongside Canadian PPI and ISM manufacturing figures out of the US.
BUOYANT CONSUMER CONFIDENCE TO UNDERPIN CAD
As mentioned in previous reports, the Canadian Dollar may gain ground against its US Dollar counterpart on the back of strong government support and the nation’s gradual distribution of Pfizer’s coronavirus vaccine.
Although Covid-19 cases have continued to surge locally, forcing several Canadian provinces to tighten restrictions, robust fiscal support has seen consumer confidence surge back to pre-pandemic levels for the first time.
Finance Minister Chrystia Freeland unveiled over C$51.7 billion of additional fiscal aid at the end of November, with the measures including an enhanced wage subsidy program – expected to cover up to 75% of payroll costs – and the extension of commercial rent and lockdown support.
Freeland stated that “our government will make carefully judged, targeted and meaningful investments to create jobs and boost growth, [and] will provide the fiscal support the Canadian economy needs to operate at its full capacity and to stop Covid-19 from doing long-term damage to our economic potential”.
That being said, the relatively slow rate of vaccinations may weigh on investor sentiment in the near term, as Canada struggles to deal with the logistical hurdles associated with distribution.
Nevertheless, a significant fiscal safety net, in tandem with better-than-expected economic data, may continue to put a premium on the cyclically-sensitive currency.
USD/CAD DAILY CHART – DESCENDING CHANNEL GUIDING PRICE LOWER
The technical outlook for USD/CAD rates remains skewed to the downside, as prices continue to track within the confines of a Descending Channel. Bearish moving average stacking, in tandem with both the RSI and MACD indicator travelling below their respective neutral midpoints, suggests the path of least resistance is lower.
A retest of the monthly low (1.2665) looks likely if confluent resistance at the 8-day exponential moving average and October 2018 low (1.2783) remains intact. Clearing that probably signals the resumption of the primary downtrend and brings psychological support at 1.2600 into focus.
Alternatively, a daily close back above 1.2785 could neutralize near-term selling pressure and generate a rebound towards the 21-EMA (1.2860).
USD/CAD 4-HOUR CHART – 100-MA CAPPING UPSIDE
Zooming into a four-hour chart bolsters the bearish outlook depicted on the daily timeframe, as prices fail to hurdle confluent resistance at the Pitchfork parallel and 100-MA (1.2790). With the trend-defining 50-MA gearing up to cross back below the 100-MA, and the RSI struggling to hold above 50, further losses appear in the offing.
Pushing back below the 8-EMA (1.2749) would probably open the door for sellers to challenge the psychologically imposing 1.2700 mark, with a convincing push below likely precipitating a retest of the monthly low (1.2665).
On the contrary, holding constructively above 1.2750 could allow buyers to drive prices back towards psychological resistance at 1.2800. Hurdling that would bring the 50% Fibonacci (1.2823) into the crosshairs.
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