Forecast for USDCAD for 9 September 2020

September 9, 2020

Forecast for USD/CAD: Will the Bank of Canada leave the pack?Dmitri Demidenko

Fundamental forecast for the Canadian dollar for today

Form positions in USD/CAD based on the results of the Bank of

Canada’s meeting

Central banks aren’t lone wolves. They move with a pack, and it’s hard for an individual to forge ahead and cover a significant distance alone. After the Fed started its policy of average inflation targeting, which means the funds rate will be close to zero for a long time, the market wondered what the others will do. The investors can count on the Bank of Canada’s and ECB’s dove rhetoric, or else the loonie and the euro may be expected to consolidate, which is not desirable against a backdrop of deflation processes that are taking place in Canada and the eurozone.

The Canadian dollar is a rare guest in LiteForex’s blog. Last time, I recommended selling [USD/CAD][1] at the breakout of the support level of 1.385 [in May][2]. Since then, the pair had been constantly falling and managed to drop below 1.3, but oil correction and revival of interest in the greenback allowed the bulls to start a counter-attack. Ahead of the Bank of Canada’s meeting, investors are wondering if the Central bank will confirm a faster-than-expected economic recovery or will prefer speaking about a long way of GDP’s returning to the trend.

Governor of the Bank of Canada Tiff Macklem promised in July to hold the overnight rate at 0.25% for at least two years and buy at least CA$5 billion per week in government bonds under the QE program. As a result, the Bank of Canada’s balance grew to CA$540 billion, whereas rumour has it at Forex that QE is getting too aggressive, and maintaining it may lead to a serious market distortion.

Bank of Canada’s balance dynamics

![LiteForex: Forecast for USDCAD for 9 September 2020][3]

Source: Bloomberg.

Canada’s Q2 GDP drew down 38.7% y-o-y to CA$1.820 trillion, performing worse than its US peer with a drawdown of 31.7%. One of the reasons for Canada’s worse performance is a tougher lockdown. However, the final numbers were better than the Bank of Canada’s forecast. June’s and July’s data showed the economy had been recovering faster than expected. According to BMO Capital Markets and Desjardins Securities, Canada will return to the trend in Q3 faster than the US. The labour market’s fast recovery proves that. Will Tiff Macklem and his colleagues admit that at September’s meeting?

Canada’s employment rate

![LiteForex: Forecast for USDCAD for 9 September 2020][4]

Source: Bloomberg.

I don’t think the central bank’s optimistic notes are appropriate in the current situation. The 10% consolidation of the loonie against the USD creates trouble for Canada’s export-oriented economy, while falling oil prices harm its industrial sector amid China’s fading demand. One needs to be a dove in these circumstances, and it will increase the risk of [USD/CAD][1]’s further correction.

At the same time, the global economy’s recovery will allow the black gold to catch its breath, while the greenback’s long-term prospects can hardly be called “bullish” against a backdrop of the Fed’s low rates. Thus, sell the pair if it pulls back from resistance at 1.332 and 1.341, or falls below support at 1.313.

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Price chart of USDCAD in real time mode

![Forecast for USD/CAD: Will the Bank of Canada leave the pack?][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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