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USD/CAD extending its seasonal advance beyond 76.4% Fibo of major downtrend

  • USD/CAD is moving to the upside in North American trade, testing through 1.35 handle in a 60 pip advance. Eyes turn from today's jobs data to GDP on Friday. 
  • US dollar underperforming elsewhere on dovish Fed hike, a downgrading of GDP numbers for 2018/19 and the scaling back the dot plot for 2019 from three hikes down to two. 
  • "CAD remains fundamentally vulnerable and liquidity conditions are deteriorating into the holidays, with bearish seasonal trends into the end of January," - Analysts at Scotiabank. 

USD/CAD has moved sharply to the upside while oil prices remain weak and the deterioration in the outlook for relative central bank policy is lifting yield spreads in a CAD-negative manner. Today,s jobs data, however, was slightly less negative, with Canada adding 39K jobs in November, according to ADP. following successive months of extremely strong jobs growth from July-Sept. "The labour market bounced back in November," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "Nearly all industries showed improved job growth with trade, transportation and utilities leading the way. On the other hand, information continued the slowdown we saw last month."

The next domestic data for the Loonie comes with the Friday’s retail sales,  BoC Business Outlook Survey results and the Canadian GDP report. GDP is expected to arrive at a 0.2% increase in October following stronger-than-expected activity data and payrolls, with risks tilted towards a 0.3% print. However, a 0.2% print on headline GDP will leave Q4 growth tracking in the mid 1% range, as noted by analysts at TD Securities, (TDS), well below the 2.3% estimate from the October MPR.

CAD is between a rock and a hard place

On the currency, analysts at TDS argued that The CAD is between a rock and a hard place:

"Though we see upside risk to GDP, we think the relief rally will be short-lived. with the backdrop for risk on shaky footing and limited scope for the BoC to further normalize rates anytime soon, the CAD is a sell-on-rallies. We think CAD pessimism is well entrenched in the USDCAD rate, with FV situated near 1.3525 at the moment. For this reason, we see scope for CAD downside to prevail in a more substantial fashion on the crosses. Here, our preference is CAD/JPY downside."

USD/CAD levels

The pair is extending its rally through the upside channel and has breached the 76.4% Fibo of the Mau 2017 downtrend with eyes on those hoghs on the 1.38 handle. Trend and momentum indicators are bullish and its ceiling is now above 1.3580. Near-term support is expected between 1.3420 and 1.3400. 

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