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Canadian dollar price forecast 2 September 2021 | USDCAD Fundamental analysis


When the Fed remains passive, not responding to the acceleration of inflation, and oil is rising in value, the USDCAD sellers feel confident. Alas, this could not go on indefinitely. What does the future hold for the pair? Let us discuss the Forex outlook and make up a trading plan.

Monthly Canadian dollar fundamental forecast

When the Canadian dollar hit a 6-month high against the USD in early June, it seemed no sign of trouble. The BoC was tapering monetary stimulus, the government sped up vaccinations, the economy was recovering quickly, and the major banks predicted its growth by 6% given the close proximity to the US with its massive incentives program. Belief in global demand fueled investor interest in oil. Alas, summer was an absolute disaster for the Loonie. First, the Fed issued a statement on a possible increase in the federal funds rate in 2022, then the oil collapse undermined the position of the USDCAD bears.

In theory, everything looked good. In practice, it turned out to be completely different. The Fed officials have announced their readiness to begin tapering the QE program this year and raise rates next year. Confident Brent and WTI bulls were frightened by the Delta, the slowdown in global demand against the background of an increase in OPEC + production, and a decline in China’s GDP growth. The Canadian economy also began to experience problems. After an impressive 5.5% in the first quarter, it unexpectedly contracted 1.1% against an expansion forecast of 2.5%. Even greater fears were caused by the decline in July GDP by 0.4%. 

Dynamics of Canadian GDP

Source: Bloomberg.

Supply problems in April-June provoked a 15% and a 12% decline in exports and residential investment, respectively. It also forced the Bank of Montreal to cut its GDP forecast for 2021 from 6% to 5% and exacerbated the political struggle between the Liberal Party led by Prime Minister Justin Trudeau and the Conservatives. Polls show that none of the opponents has a decisive advantage.

Dynamics of ratings of Canadian political parties

Source: Bloomberg.

As a rule, parliamentary elections lead to an increase in the volatility of the national currency and put pressure on it due to the unpredictability of the results. This is not the case with the Loonie. Despite the growing political uncertainty, the previous five votes had little or no effect on the CAD rate. Currently, the monthly volatility of the Canadian dollar is only slightly higher than the 3-month volatility, which indicates a reduced sensitivity of the financial markets to the September 20 elections. Investors are well aware that the fate of USDCAD will be determined by factors such as monetary policy, economic growth and oil market conditions.

Monthly USDCAD trading plan

The US jobs report will have the most significant impact on the USDCAD dynamics in the short term. The same strong non-farm payrolls data as in June and July will bring the US economy closer to full employment and push the Fed towards normalizing monetary policy. This will lead to a strengthening of the greenback against the major world currencies and contribute to the continuation of the USDCAD rally in the direction of 1.278 and 1.29. On the contrary, weak data will cause the pair to fall below the important support at 1.256, followed by a decline to 1.2485 and 1.24.

       

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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