Yesterday’s trade saw USD/CAD within the range of 1.3483-1.3587. The pair closed at 1.3538, shedding 0.10% on a daily basis. It has been the 19th drop in the past 40 trading days and also a fourth consecutive one. In addition, the daily low has been the lowest level since December 7th 2015, when a low of 1.3362 was registered. USD/CAD depreciated 3.11% in February, or the most since April 2015. It has been the first drop in the past four months.
At 8:19 GMT today USD/CAD was edging down 0.25% for the day to trade at 1.3504. The pair touched a daily low at 1.3481 at 7:47 GMT, making an exact test of the lower range breakout level (S4) and also a lower-low test of the February 29th low. The current daily high was at 1.3552, recorded during the early phase of the Asian trading session.
Canada’s dollar advanced to fresh highs unseen in 2.5 months against its US counterpart, as crude oil futures surged 3.65% on Monday. February 29th marked the 26th gain in oil prices out of the past 52 trading days. Oil futures for April delivery went up as high as $34.02 per barrel on February 29th and closed at $33.77. As of 8:25 GMT today the commodity was gaining 1.04% on a daily basis to trade at $34.12 per barrel, after going up as high as $34.28 earlier. Oil rose 0.45% in February, following three successive months of decline.
On Tuesday USD/CAD trading may be influenced by the following macroeconomic reports as listed below.
Fundamentals
United States
Manufacturing PMI by Markit – final reading
The final estimate of the Manufacturing Purchasing Managers Index for February probably confirmed the flash estimate of 51.0, which was reported on February 22nd. If so, it would be the lowest index level since October 2012, when a final reading of 51.0 was reported. In January the final seasonally adjusted PMI stood at 52.4, inching down from a preliminary value of 52.7.
According to the preliminary report by Markit, ”Manufacturers overwhelmingly linked the slowdown to softer underlying demand patterns in February, while only a small minority cited temporary weather related disruptions. There were reports that weaker business sentiment, alongside uncertainty about the general economic outlook, had encouraged clients to delay spending decisions during the latest survey period.”
”Softer demand patterns contributed to a renewed decline in pressures on operating capacity across the manufacturing sector during February. This was highlighted by the sharpest reduction in backlogs of work since September 2009.”
”Input buying fell in February, thereby ending a 27-month period of expansion, while manufacturers’ finished goods inventories built up for the third month running. Employment growth was maintained in February, although the rate of job creation was one of the weakest seen over the past three years”, Markit stated.
Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for January confirmed or came above the preliminary reading, this would cause a moderate bullish impact on the US dollar. The final reading is due out at 14:45 GMT.
Manufacturing PMI by the ISM
Activity in United States’ manufacturing sector probably improved in February, with the corresponding manufacturing PMI coming in at a reading of 48.8, according to expectations, up from 48.2 in December and January. The latter has been the lowest PMI reading since June 2009, when the gauge was reported at 44.8.
The New Orders Index came in at 51.5 in January, up from 48.8 in December. The sub-gauge of production was reported at 50.2, advancing from 49.9 in December. The index of employment slid to a value of 45.9 in January from 48.0 in the preceding month. The gauge of prices was at 33.5 in January, matching the reading in December, which suggested lower prices of raw materials for a 15th month in a row. In January, 8 manufacturing industries reported growth and 10 reported contraction in overall business activity, according to the report by the Institute for Supply Management (ISM).
In case the manufacturing benchmark improved more than anticipated in February, this would have a strong bullish effect on the US dollar. The Institute for Supply Management (ISM) is to release the official reading at 15:00 GMT.
Canada
Gross Domestic Product
Canadian Gross Domestic Product (GDP) probably expanded at a rate of 0.1% in Q4 compared to the same quarter a year earlier, according to the median forecast by experts, following a 2.3% growth in the preceding quarter.
Household final consumption expenditure increased 0.3% in the third three months of the year, following a 0.6% expansion in Q2.
Business gross capital formation shrank 0.8% in Q3, mainly due to a 1.5% drop in business investment in non-residential structures, machinery and equipment. It has been a third straight quarter of contraction.
Business entities amassed inventories at the amount of CAD 0.6 billion in Q3, a slowdown from CAD 5.3 billion in Q2.
Canadas total exports of goods rose 2.7% in Q3, after a 0.5% increase during the second three months of the year, while exports of services were up 0.1%. At the same time, imports of goods and services shrank 0.7% during Q3, alongside weaker domestic demand, according to the report by Statistics Canada.
In case annualized GDP growth met expectations or remained flat in Q4, this would mount heavy selling pressure on the loonie. The official GDP report is due out at 13:30 GMT.
RBC Manufacturing PMI
At 14:30 GMT Royal Bank of Canada (RBC) is to report on manufacturing activity in February. The corresponding Manufacturing Purchasing Managers Index stood in the zone of contraction for the sixth straight month in January, coming in at a reading of 49.3. It has been the highest level since August 2015, when a reading of 49.4 was reported. The Manufacturing PMI stood at 47.5 in December, or the lowest level on record.
The PMI report is based on data collected from monthly replies to questionnaires sent to supply managers in over 400 industrial companies. The PMI is a compound index based on five individual indexes: new orders, production, employment, delivery time, stocks of purchases. Values of the index above the key level of 50.0 indicate overall increase in activity in the sector, while readings below 50.0 are indicative of contraction in activity. PMIs are earlier indicators of economic conditions published on a monthly basis and are available much before the publication of relevant data from government authorities. This way they provide an earlier insight about economic development trends.
In case the gauge continued to improve in February, this would have a moderate bullish effect on the Canadian dollar.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:
R1 – 1.3548
R2 – 1.3557
R3 (range resistance) – 1.3567
R4 (range breakout) – 1.3595
S1 – 1.3528
S2 – 1.3519
S3 (range support) – 1.3508
S4 (range breakout) – 1.3481
By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:
Central Pivot Point – 1.3625
R1 – 1.3749
R2 – 1.3985
R3 – 1.4109
S1 – 1.3389
S2 – 1.3265
S3 – 1.3029
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