A rebound of the USDCAD currency pair from a two-month low set just below the 1.35 mark continues. The upward movement paused in the morning trading on Wednesday, with market participants expecting new triggers for the US and Canadian dollar rates. By the end of the day, a number of figures should be released that could push USDCAD towards the next growth target — the level of 1.365.
Yesterday's data on the US economy turned out to be mixed. ISM business activity indexes exceeded expectations, while data on open vacancies in the labor market was much worse than both analysts' forecasts and October figures. In general, these factors leveled each other out, and the US currency continued to gradually recover the positions lost last month.
The statistics on business activity in the services sector was released in Canada. The PMI index decreased from 46.6 to 44.5 points. Thus, it reached its lowest level since June 2020, remaining below the key level of 50 points for 6 months in a row. Paul Smith, director at S&P Global Market Intelligence, notes the reluctance of Canadian business executives to expand. High interest rates and economic uncertainty are adding to the pessimism of service sector managers.
The last meeting of The Bank of Canada in 2023 will be held today. With more signs of an imminent recession, market participants expect the key rate to remain at the current level of 5%. Economists polled by Reuters forecast rate cuts in Canada to begin in the second quarter of 2024. For all of next year, borrowing costs should fall by at least 1%. The forecast for the US is almost the same, which means the rate differential will continue to play in favor of the US dollar.
On the daily chart of USDCAD, the RSI indicator bounced up from the oversold zone, which indicates the further development of the upward trend. If the rhetoric of the Bank of Canada officials turns out to be dovish, the level of 1.365 could be reached before the end of the week.
The following trading strategy can be suggested:
Buy USDCAD at the current price. Take profit — 1.365. Stop loss — 1.35.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
