The USD has surged around 150 pips higher across the board today and USD/CAD has finally broken out of the range where it was trading in the last two weeks. We posted earlier that this pair was confined by two moving averages, with the 200 SMA (purple) acting as support on the H4 chart. We saw a strong bounce off that moving average today, so the 100 SMA (green) which was acting as resistance has been broken.

USD/CAD H4 Chart – Can Buyers Push Above 1.37?

The 100 SMA has been broken as resistance

So, this is a strong bullish signal from USD buyers, although it is the first trading day of the year and there might be some positioning as well as some cash flows going around. We are long already on this forex pair and are keeping the position open as buyers remain in control. The slowdown in German CPI inflation confirms that inflation is slowing globally, which will turn the ECB less hawkish.

Besides that, the manufacturing PMI report from Canada for December came out below expectations, confirming a contraction in activity in this sector, which has softened the Canadian Dollar, as the Bank of Canada should slow with rate hikes as well and stop soon.

Canada December S&P Global Manufacturing PMI

• December S&P Global manufacturing PMI 49.2 points vs 46.9 prior
• November manufacturing PMI was 49.6 points
• Both output and new orders continue to fall
• Slight rise in employment as firms fill long-existing vacancies
• Prices paid for inputs continued to increase at an elevated rate, and one that was faster than November’s two-year low
• Panelists continued to attribute rising prices to elevated transportation costs, and generally tight supply conditions

This is a decent result at a time when the manufacturing sector is clearly slowing down. Canadian manufacturers should benefit from a weaker currency this year. Commenting on the latest survey results, Paul Smith, Economics Director at S&P Global Market Intelligence said:

“The Canadian manufacturing economy turned in another relatively subdued performance as 2022 closed, with both production and order books falling since the previous month. Firms reported again that weak market demand reflected both ongoing uncertainty and the negative impact of high inflation.

“Indeed, cost pressures turned slightly upward during December, arresting the recent easing trend. With supply constraints persisting, price stickiness remains a concern for companies, who remain on average subdued and concerned about the future.

“More positive was another month of employment growth, as firms sought to fill long-held vacancies, although even here the rate of expansion was marginal amid reports to a reluctance to hire at a time when production and sales continue to fall.”

USD/CAD Live Chart