USD/CAD Makes a Break for the Upside As Risk Sentiment Takes A Hit

After failing to maintain gains above the resistance zone at 1.39, USD/CAD began to fall. Buyers were aiming to break through this resistance zone, but the USD lost impetus in early November as the FED began to send dovish signals, and this pair reversed dramatically, tumbling about 700 pips lower in the meantime. The drop halted around 1.35 for a while, but it resumed the decline after Jerome Powell reiterated that rate cuts are on the way and USD/CAD fell below 1.32, but it is making a bullish move today, as 2024 gets underway.

moving averages were acting as resistance at the top for this pair, with the smaller ones such as the 20 SMA (gray) taking over, indicating that the trend is strong. But, last week we saw some consolidation, while today buyers are having a go at the top side, as the USD tries to make a comeback after the heavy losses it endured in the last two months of 2023.

USD/CAD pushed above the 50 SMA (yellow) today and reached a new high for the day at 1.3330. The previous week’s low price – and the lowest level since early August – was 1.31766. The softer manufacturing PMI numbers from Canada have helped buyers as well, showing that this sector is falling deeper into contraction as shown below:

The Canada Manufacturing PMI for December 2023

• Manufacturing PMI for December 45.4 points – lowest since May 2020
• November Manufacturing PMI was 47.7 points
• For the full report click here

Highlights from S&P Global on the PMI:

• Intensified Downturn in Manufacturing Sector: Canada’s manufacturing sector experienced an accelerated decline in output and new orders in December.
• Job Losses and Subdued Confidence: There was a return to job shedding, and confidence about the future remained low compared to historical survey data.
• Price Increases Amidst Falling Demand: Prices continued to rise, despite weakening demand for inputs and improved supply conditions.
• PMI Decline to Lowest Since May 2020: The S&P Global Canada Manufacturing PMI registered 45.4 in December, down from 47.7 in November, indicating contraction for the eighth consecutive month.
• Significant Decreases in Output and New Orders: December saw the steepest declines in output and new orders since May 2020, largely due to high prices impacting domestic and foreign demand.
• Decline in New Export Orders: There was a notable reduction in new export orders, the largest decline in over three years, partly due to global conflicts affecting manufacturing demand.
• Cuts in Purchases and Employment: Firms reduced their input purchasing and employment levels, with a strong preference for using existing stock due to weak order trends.
• Increased Costs in Supply Chain: Despite lower demand, input prices continued to rise, leading firms to increase their charges, albeit at a slower rate than in November.
• Improving Supply Conditions: Average vendor times improved for the first time in four months, indicating an easing of supply chain issues.
• Modest Confidence for Future Production: Firms showed modest confidence for a rise in production over the next 12 months, though concerns about high prices and interest rates persist. Confidence remains below trend despite a slight increase.
• Data Collection Period: The data was collected between December 6 and 18, 2023.

Commenting on the latest survey results, Paul Smith, Economics Director at S&P Global Market Intelligence:

Canada’s manufacturing economy endured a difficult end to 2023 and with that rounded off a challenging year for the sector overall. The respective PMI posted below the 50.0 no-change mark for the ninth time in 2023, and comfortably registered its worst reading in the post-pandemic period. Accelerated declines in both production and new orders were registered, amid reports that demand for manufactured goods remains subdued.

Firms noted that clients remain burdened by high prices, and these continued to rise throughout the supply chain over the month. However, at least rates of inflation eased according to the PMI data, and given the increasingly weak demand environment, are likely to continue to fall in the months ahead. With employment also down quite noticeably, there are also signs of a loosening of the industrial labour market. This development will add to hopes that the Bank of Canada remains firmly on its stated path of restoring price stability in 2024.

USD/CAD Live Chart