Canadian Dollar goes sideways after Tuesday’s Fed fizzle

• Canadian Dollar struggled to develop momentum with little of note on the docket.
• Canada is largely absent from the economic calendar this week.
• Fed Chair Powell stuck close to the usual script, giving investors little to work with.

The Canadian Dollar (CAD) found little reason to move in any particular direction on Monday with little meaningful data on the offering and a flubbed US Federal Reserve (Fed) appearance that gave markets nothing to work with.

The only economic datapoint from Canada this week will be May’s Building Permits to be released on Friday, but little market impact is expected. The CAD has pushed into the middle against the US Dollar (USD), and a lack of a meaningful release schedule on the Canadian side exposes the Canadian Dollar to broader market flows.

Fed Chairman Jerome Powell gave the first half of his two-day testimony before US Congressional committees on Tuesday, delivering the Fed’s semiannual Monetary Policy Report to the Senate Committee on Banking, Housing, and Urban Affairs. Fed Chair Powell struck a familiar tone, sticking close to talking points that have been made before and highlighting the Fed’s willingness to wait as long as is necessary for inflation to ease towards the Fed’s 2% annual target. Investors, hoping for further signs of the Fed stepping towards interest rate cuts, interpreted the appearance as more hawkish than hoped, drawing risk appetite down and bolstering the Greenback.

Fed Chair Powell will give the second half of the Fed’s Monetary Policy Report to the Congressional House Committee on Financial Services on Wednesday. No changes in rhetoric or new information are expected in the follow-up presentation heading into the midweek.

Later in the week, June’s US Consumer Price Index (CPI) inflation is scheduled for Thursday, followed by Friday’s US Producer Price Index (PPI) wholesale inflation, also for June. Core CPI in June is expected to hold steady at 3.4% YoY, while core PPI for the same period is expected to tick upwards to 2.5% from the previous period’s 2.3%. In both cases, meeting forecasts will disappoint markets that are overwhelmingly betting on slowing inflation to deliver at least a quarter-point rate cut from the Fed at the September 18 rate call.

USD/CAD technical outlook

USD/CAD is stuck in place near 1.3640, treading water and moving in a tight cycle as the pair remains unable to break above 1.3650. Last week’s rebound from the last swing low towards 1.3600 failed to muscle the pair back above the 200-hour Exponential Moving Average (EMA) at 1.2656, but bidding pressure remains too high to allow a backslide into fresh lows.

USD/CAD daily candlesticks are mired in a technical trap, caught in congestion between the 200-day EMA at 1.3590 and a supply zone priced in above the last peak near 1.3750.

USD/CAD hourly chart

USD/CAD daily chart