Forex Market: USD/CAD daily forecast

During yesterday’s trading session USD/CAD traded within the range of 1.0716-1.0770 and closed at 1.0759.

At 11:18 GMT today USD/CAD was adding 0.14% for the day to trade at 1.0773. The pair touched a daily high at 1.0774 at 11:17 GMT, the pairs strongest since June 20th.

Fundamental view

United States

United States’ annualized index of producer prices (PPI) probably jumped 1.8% in June, according to the median estimate by experts, after adding 2.0% in the previous month. This index reflects the change in prices of over 8 000 products, sold by manufacturers during the respective period. The PPI differs from the CPI, which measures the change in prices from consumer’s perspective, due to subsidies, taxes and distribution costs of different types of manufacturers in the country. In case producers are forced to pay more for goods and services, they are more likely to pass these higher costs to the end consumer. Therefore, the PPI is considered as a leading indicator of consumer inflation. Higher than expected producer prices would have a bullish effect on the greenback.

At the same time, nation’s annualized core PPI, which excludes prices of volatile categories such as food and energy, probably rose 1.6% in June, following a 2.0% gain in the previous month. This indicator is quite sensitive to changes in aggregate demand, thus, it can be used as a leading indicator for the economy. However, because of its restrained scope, it is not suitable for future inflation forecasts.

The US Bureau of Labor Statistics is expected to publish the official PPI readings at 12:30 GMT. Higher-than-expected readings would support greenback’s demand.

Canada

The Bank of Canada will probably keep its benchmark interest rate intact at 1.0%, where it has been since September 8th 2010. The Bank of Canada holds its monetary policy in order to set the short-term interest rates. This is accomplished by changing the so-called “overnight” rate. This is the interest rate that major financial institutions pay as interest in the exchange of money between them overnight. Changes in the overnight rate influence other interest rates, such as interest rates on consumer loans, as well as those tied to mortgages. The purpose of the Canadian monetary policy is to maintain the level of inflation as measured by CPI on an annual basis and for this purpose the central bank works closely with the government. Since 1995 the target range is set between 1 and 3 percent.

In November 2000, the bank introduced a system of eight fixed dates during the year, to discuss possible changes in interest rates. Decisions are taken by consensus. The Governing Council meeting usually starts on Friday, with the development of general economic analysis and future model of economic development, as well as identifying the trend and inflation. By the end of the day the bank announces its decision on the base rate and holds a press conference on the decision.

At 14:00 GMT, the Bank of Canada will announce its interest rate decision. In case the central bank preserves the main interest rate or in case the bank raises it, this will certainly heighten the loonie’s appeal.

Technical view

According to Binary Tribune’s daily analysis, in case USD/CAD manages to breach the first resistance level at 1.0780, it will probably continue up to test 1.0802. In case the second key resistance is broken, the pair will probably attempt to advance to 1.0835.

If USD/CAD manages to breach the first key support at 1.0727, it will probably continue to slide and test 1.0694. With this second key support broken, the movement to the downside will probably continue to 1.0673.