Yesterday’s trade (in GMT terms) saw USD/CAD within the range of 1.3080-1.3147. The pair closed at 1.3105, inching up 0.05% compared to Tuesdays close. It has been the 174th gain in the past 328 trading days and also a fourth consecutive one. The daily high has been a level unseen since August 9th, when a high of 1.3191 was registered. The major pair appreciated 0.59% in August, following another 0.80% gain in July.
At 8:33 GMT today USD/CAD was inching up 0.08% on the day to trade at 1.3115. The pair touched a daily high at 1.3131 during early European trade, undershooting the upper range breakout level (R4), and a daily low at 1.3094 during the early phase of the Asian trading session.
Meanwhile, crude oil futures marked their 98th drop out of the past 183 trading days on August 31st. Oil for October delivery went down as low as $44.51 per barrel, or a level unseen since August 15th, and closed at $44.70, plummeting 3.56% compared to Tuesday’s close. As of 8:29 GMT today the commodity was inching up 0.04% to trade at $44.72, after going up as high as $45.07 per barrel earlier. Crude oil prices and CAD valuation tend to be strongly positively correlated.
On Thursday USD/CAD trading may be influenced by the following macroeconomic reports and other events as listed below.
Fundamentals
United States
Initial, Continuing Jobless Claims
The number of people in the United States, who filed for unemployment assistance for the first time during the business week ended on August 26th, probably rose to 265 000, according to market consensus, from 261 000 in the preceding week. The latter has been the lowest number of claims since the business week ended on July 15th, when the revised down 252 000 claims were reported.
The 4-week moving average, an indicator lacking seasonal effects, was 264 000, marking a decrease by 1 250 compared to the preceding week’s unrevised average.
The business week, which ended on August 19th, has been the 77th consecutive week, when jobless claims stood below the 300 000 threshold, which suggested a healthy labor market. It has been the longest streak since 1970.
Initial jobless claims number is a short-term indicator, reflecting lay-offs in the country. In case the number of claims met expectations or increased further, this would have a moderate bearish effect on the US dollar.
The number of continuing jobless claims probably remained stable at the seasonally adjusted 2 145 000 during the business week ended on August 19th, according to the median forecast by experts. The latter represented a drop by 30 000 compared to the unrevised number of claims reported in the week ended on August 5th. This indicator reflects the actual number of people unemployed and currently receiving unemployment benefits, who filed for unemployment assistance at least two weeks ago.
The US Department of Labor is to release the weekly report at 12:30 GMT.
Manufacturing PMI by Markit – final reading
The final estimate of the Manufacturing Purchasing Managers’ Index for August probably confirmed the preliminary reading of 52.1, according to the median forecast by analysts. In July the final seasonally adjusted PMI stood at 52.9, confirming the preliminary reading. It has been the highest PMI level since October 2015, when a final 54.1 was reported.
According to the preliminary report by Markit, ”U.S. manufacturers signalled increased output for the third month running in August. Furthermore, the rate of expansion remained solid overall, having edged up slightly from July to a nine-month high. Anecdotal evidence suggested that new product launches, stronger underlying demand and new marketing strategies had supported production growth in August.”
”Although solid growth of output was sustained, total new orders expanded at a slower rate in August. Data indicated that relatively subdued domestic demand was a reason behind softer growth in overall new work, as export sales increased at the fastest pace in 23 months.”
”Manufacturing employment increased only slightly during August. Furthermore, it was the weakest rate of payroll growth seen for four months. Greater staff numbers were generally linked to higher amounts of new work. At the same time, other firms mentioned that efforts to raise efficiency had weighed on overall jobs growth”, Markit stated.
Values above the key level of 50.0 indicate predominant optimism (expanding activity). In case the final PMI for August outstripped market expectations, this would lead to a moderate bullish impact on the US dollar. The final reading is due out at 13:45 GMT.
Manufacturing PMI by the ISM
Activity in United States’ manufacturing sector probably increased at a slower pace in August, with the corresponding manufacturing PMI coming in at a reading of 52.0, according to market expectations, down from 52.6 in July. If so, this would be the sixth consecutive month of expansion, which followed four successive months of contraction.
The New Orders Index came in at 56.9 in July, slipping from 57.0 in June. The sub-gauge of production was reported at 55.4 in July, accelerating from 54.7 in the preceding month. The index of employment fell to a value of 49.4 in July from 50.4 in the previous month. The gauge of prices was at 55.0 in July, falling from 60.5 in June, which suggested higher prices of raw materials for a fifth straight month, but also a slower rate. In July, out of a total of 18 manufacturing industries, 11 reported growth and 7 reported contraction of overall business activity, according to the report by the Institute for Supply Management (ISM).
Readings above the key level of 50.0 are indicative of expanding activity in the sector of manufacturing. In case, however, the PMI slowed down more than anticipated in August, this would have a strong bearish effect on the US dollar. The Institute for Supply Management (ISM) is to release the official reading at 14:00 GMT.
Fed’s Mester statement
At 16:25 GMT the Fed President for Cleveland and also a FOMC member, Loretta Mester, is expected to take a statement. Any remarks in regard to the central bank’s policy stance or the US economic outlook would heighten USD volatility.
Canada
RBC Manufacturing PMI
At 13:30 GMT Royal Bank of Canada (RBC) is to report on manufacturing activity in August. The corresponding Manufacturing Purchasing Managers’ Index stood in the zone of expansion for a fifth consecutive month in July, coming in at a reading of 51.9, ticking up from 51.8 in June.
In July, the gauges of output, new orders and employment improved modestly. However, there were indications of weaker export market demand, as new work from abroad decreased.
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 inhabit the area above 50.00 and outpaced July’s reading, this would have a moderate bullish effect on the Canadian dollar.
Bond Yield Spread
The yield on Canada’s 2-year government bonds went as high as 0.600% on August 31st, after which it closed at 0.582% to lose 0.005 percentage point compared to August 30th.
Meanwhile, the yield on US 2-year government bonds climbed as high as 0.817% on August 31st, after which it fell to 0.809% at the close to add 0.004 percentage point compared to August 30th.
The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, widened to 0.227% on August 31st from 0.218% on August 30th. The August 31st yield spread has been the largest one since August 26th, when the difference was 0.238%.
Daily, Weekly and Monthly Pivot Levels
By employing the Camarilla calculation method, the daily levels of importance for USD/CAD are presented as follows:
R1 – 1.3111
R2 – 1.3117
R3 (Range Resistance – Sell) – 1.3123
R4 (Long Breakout) – 1.3142
R5 (Breakout Target 1) – 1.3163
R6 (Breakout Target 2) – 1.3172
S1 – 1.3099
S2 – 1.3093
S3 (Range Support – Buy) – 1.3087
S4 (Short Breakout) – 1.3068
S5 (Breakout Target 1) – 1.3047
S6 (Breakout Target 2) – 1.3038
By using the traditional method of calculation, the weekly levels of importance for USD/CAD are presented as follows:
Central Pivot Point – 1.2950
R1 – 1.3068
R2 – 1.3132
R3 – 1.3250
R4 – 1.3369
S1 – 1.2886
S2 – 1.2768
S3 – 1.2704
S4 – 1.2641
In monthly terms, for USD/CAD we have the following pivots:
Central Pivot Point – 1.3024
R1 – 1.3283
R2 – 1.3462
R3 – 1.3721
R4 – 1.3981
S1 – 1.2845
S2 – 1.2586
S3 – 1.2407
S4 – 1.2229
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