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USD/CAD rallies to three-day highs around 1.3580s post upbeat US Services PMI

  • A risk-off impulse bolstered the US Dollar to the detriment of the Canadian Dollar.
  • November US ISM Services PMI was better than expected, spurring a 120 pip jump on the release.
  • The Bank of Canada is expected to hike rates by 25 bps on Wednesday.
  • USD/CAD Price Analysis:

The Canadian Dollar (CAD) weakens against the US Dollar (USD), while the USD/CAD reclaims the 1.3500 figure, spurred by positive economic data from the United States (US) revealed on Monday and a solid November employment report last Friday. Hence, the USD/CAD is trading at 1.3576 after hitting a daily low of 1.3384.

Sour sentiment and upbeat US ISM Services PMI underpinned the USD

Risk aversion is the name of the game. The Institute for Supply Management (ISM) reported that the Services Index for November grew at a faster pace than the 53.3 estimated, at 56.5, while showing that the price index subcomponent added to inflationary pressures in the US. Meanwhile, the US Factor Orders for November jumped 1% vs. expectations of a 0.7% increase, above September’s data.

The USD/CAD reacted upwards, rallying more than 120 pips in three hours, from 1.3400 to 1.3520. Of late, the major extended its rally towards fresh daily highs of 1.3581.

Aside from this, last week’s dovish speech by the Federal Reserve (Fed) Chair Jerome Powell, saying that moderating interest rate hikes could happen as soon as December, plunged the USD. Nevertheless, last Friday’s US Nonfarm Payrolls report cemented the case for additional rate hikes. November figures came at 263K beating the consensus of 200K, while the Average Hourly Earnings jumped by 5.1% YoY, above 4.9% forecasts.

In the meantime, the last week’s Canadian docket featured Q3’s Gross Domestic Product (GDP) surprisingly jumped 2.9% QoQ, while employment data showed the economy added 10.1K jobs, aligned with the consensuses.

Ahead into the week, the Bank of Canada (BoC) Wednesday’s monetary policy looms, with analysts split between a 25 or 50 bps rate hike. Analysts at TD Securities expect a 25 bps rate hike, taking rates to the 4.00% threshold. Later in the week, the BoC’s Deputy Governor Kozicki will cross newswires, followed by the Balance of Trade and Building Permits for October.

USD/CAD Price Analysis: Technical outlook

The daily chart shows that the USD/CAD is upward biased, breaking above a three-month-old downslope resistance trendline drawn from October highs. Traders should be aware that a daily close above the latter would expose the November 29 daily high of 1.3645. Nevertheless, on its way north, the USD/CAD needs to clear the psychological 1.3600 figure, followed by the former, and then the 1.3700 mark.