We are pleased to bring you the latest edition of the series produced by our colleagues in RBC Capital Markets, hosted by George Davis, CMT, the award winning Chief Technical Analyst for Fixed Income and Currency Strategy.
View the George Davis Report HERE
In this installment George discusses the drivers that led to CAD volatility during the month of July, pushing USDCAD to 1.2800 mid-month and then falling back toward 1.2400 by month’s end. At their June meeting, the FOMC shifted forward expectations for the first rate hike from 2024 to 2023. This led to a broad-based USD rally throughout June and into July reversing a 1-year downtrend for USDCAD. Also, the covering of USDCAD short positions, which were at historical highs, along with concerns about the Delta coronavirus variant which led to a general risk-off environment, added to the rally for the USD. However, George doesn’t feel that the move higher in USDCAD will be sustainable as any growth hiccups due to the Delta variant should be lessened given the high vaccination rate in Canada. With the BoC expected to raise rates late next year, ahead of the Fed in 2023, a further case can be made for CAD strength. That said, the Fed’s Jackson Hole symposium may shed some light on the their tapering schedule which would serve to underpin the USD if expected rate hikes are moved forward. This all has implications on the expected USDCAD trading range which George has moved slightly higher for the month ahead. USD buyers should look to the 1.2300/1.2400 area as an entry level, while USD sellers would look at 1.2700/1.2800 as the upper boundary to reduce exposure.