The Canadian dollar has steadied on Wednesday, after sharp losses a day earlier. In the North American session, USD/CAD is trading at 1.2440, down 0.13% on the day. USD/CAD jumped 0.94% on Tuesday, its strongest one-day performance since February. The pair also rose to its highest level since late April. Oil prices fell by 2% on Tuesday, which weighed heavily on the commodity-based Canadian dollar.
On the fundamental front, Canada releases Ivey PMI later in the day (12:3o GMT). The PMI, which covers all sections of the Canadian economy, has looked sharp, with four straight readings at the 60-level or higher. This is well into expansionary territory, as the 50-level separates contraction from expansion. Another strong reading would be bullish for the Canadian dollar.
The US dollar made gains against the majors on Tuesday and pummelled the Canadian dollar. USD/CAD jumped 0.94%, its largest one-day gain since February. Investors gave the US dollar a thumbs-up after PMI data indicated that the service sector continues to expand.
The ISM Non-Manufacturing PMI for June dropped to 60.1, down from 64.0 in May. However, given that the May reading was a new record, US dollar bulls were clearly not deterred by the deceleration. It is worth noting that the ISM employment component contracted, another indication that employers continue to have difficulty finding employees, despite a surge in the unemployment rate. The Markit Services PMI was revised lower, from 64.8 to 64.6 points. The services sector remains strong, but these releases are unlikely to make the Fed reconsider tapering earlier than planned in 2022.
In the US, the FOMC releases the minutes from its June policy meeting (18:00 FOMC). The Fed has shown a hawkish bend of late, particularly when it shocked the markets and brought up the timeline for interest rate hikes to 2023, up from 2024. However, with the June employment report showing a surge in the unemployment rate and weak wage growth, a taper in QE seems more distant. The minutes are the key event risk of the week, and we could see some volatility from the US dollar during the North American session.
USD/CAD Technical
With little change in USD/CAD, the weekly support and resistance levels are unchanged:
- There is resistance at 1.2423, followed by resistance at 1.2517
- On the downside, there is support at 1.2261. Below, there is support at 1.2143
