USDCAD to Resume Uptrend As BOC Macklem Confirms July Cut

USDCAD surged above the triangle early this month after the BOC turned dovish while the FED held its hawkish position, but this pair has retreated 100 pips lower since then. However, the price has reached a support zone where it is starting to bounce from, with the BOC governor helping with his comments, after he said that they’re confident inflation will fall to normal levels.

USD/CAD Chart Daily – The 200 SMA Held the Decline

Following the release of the latest Non-Farm Payroll (NFP) data, USD/CAD broke out of a two-month triangle pattern, transforming the previous resistance into a new support level. After the bullish breakout in early June, the pair has been in a corrective phase but managed to find support near key moving averages. USD/CAD retreated to 1.3650, where it encountered support at the former descending resistance trendline, now acting as a robust support zone. This technical setup suggests a potential resumption of the upward trend, contingent on maintaining this support level.

Comments from the Bank of Canada Governor Macklem

• Inflation Target: BOC Governor Macklem expresses optimism about hitting the inflation target.
• Job Market: Believes a significant rise in jobless rates isn’t necessary to achieve inflation goals; sees room for job growth.
• Financial Stress: Highlights financial stress, especially among renters.
• Soft Landing: Acknowledges challenges in achieving a soft economic landing.
• Wage Growth: Observes initial signs of moderating wage growth and expects further moderation.
• Labor Market: Suggests the government has room to adjust non-permanent resident policies without significantly tightening the labor market.
• Market Expectations: Market was pricing in a 70% chance of a July rate cut, which now seems even more likely based on his comments.

Bank of Canada Governor Tiff Macklem conveyed increasing optimism about the country’s progress toward achieving its inflation target. He noted that the path to reducing inflation does not necessarily require a substantial increase in the unemployment rate, as there remains potential for job growth even as inflation trends closer to the 2% target. Macklem pointed out that financial stress is particularly pronounced among renters, underscoring the diverse impacts of current economic conditions. He acknowledged that while the journey to a soft landing has always been challenging, recent developments suggest progress towards this goal, though it has not been fully realized yet.

On the wage front, Macklem mentioned that there are early signs of wage growth moderation, which is a positive indicator for controlling inflation. He anticipates that wage growth will continue to moderate, aligning with broader economic adjustments. Additionally, Macklem highlighted that the government has some leeway to reduce the influx of non-permanent residents without significantly tightening the labor market. This could help balance job availability with the goal of managing inflation. Before Macklem’s comments, the market had priced in a 70% chance of a rate cut in July. Given his statements, which did not counter this expectation, the probability of a rate cut now appears even higher, which should keep the Canadian Dollar weak and USD?CAD bullish.

USD/CAD Live Chart