Jump to content

US Dollar Outlook: Analyzing the Dollar Dip for USD/CAD and USD/ZAR


Recommended Posts

DXY, USD/CAD, USD/ZAR ANALYSIS

  • Dollar dip unlikely to persist – USD fundamentals remain strong
  • USD/CAD drops after hot Canadian inflation print
  • Impressive ZAR unwinds despite a weaker dollar
 

DOLLAR DIP UNLIKELY TO PERSIST – USD FUNDAMENTALS REMAIN STRONG

The US dollar basket (DXY) – a benchmark for dollar performance against select major currencies – trades lower this morning, continuing yesterday’s decline. The pullback appears more than a week after the index put in 9 consecutive green trading days, bringing DXY from 97.70 to 100.

The DXY’s decline is largely attributed to the recent rise in EUR/USD – which makes up 57.6% of the index - as the end to accommodative monetary policy is likely to occur at the end of Q2 with a first rate hike anticipated in early Q3. What does this mean for the dollar?

The dollar still boasts very strong fundamentals, with an aggressive rate hike timeline as we could see multiple 50 basis point moves in a number of Fed meetings this year, starting early next month. In fact, market expectations are currently pricing in just shy of three 50 basis point hikes starting in the May meeting. In addition, the FOMC has begun discussions on the balance sheet reductions and is likely to provide more information on this in the May meeting.

However, earlier this week the IMF lowered its global growth forecasts in light of the war in Ukraine and inflationary pressures that have been exacerbated by the conflict. Potential economic headwinds may slow the pace and size of future rake hikes but such challenges are unlikely to derail the Fed's hawkish objectives for now.

DXY trades around the psychological 100 mark where it may find short-term support before launching higher. A break below 100 brings 99.40 into focus as the nearest level of support.

US Dollar Basket (DXY) Daily Chart

US Dollar Outlook: Analyzing the Dollar Dip for USD/CAD and USD/ZAR

Source: TradingView, prepared by Richard Snow

USD/CAD DROPS AFTER HOT CANADIAN INFLATION PRINT

Yesterday, Canadian headline inflation obliterated estimates of 6.1%, ultimately coming in at 6.7%. In the current inflationary environment, upward surprises have been commonplace however, a 0.6% beat is rather sizeable and the markets agreed.

USD/CAD dropped yesterday and is slightly lower in the early London session. The Bank of Canada (BoC), much like the Fed, is implementing aggressive rate hikes in an attempt to lower inflation. The recent dollar pullback now sees USD/CAD at an interesting zone of around 1.2460. This level has supported the pair for most of this year, with occasional breaches proving to be brief.

The threat of a potential death cross may support further selling if we see a hold below 1.2460 with follow-through. Resistance appears to be all the way up around 1.2645, the 23.6% Fib of the major 2020 decline.

USD/CAD Daily Chart

US Dollar Outlook: Analyzing the Dollar Dip for USD/CAD and USD/ZAR

Source: TradingView, prepared by Richard Snow

IMPRESSIVE ZAR UNWINDS DESPITE A WEAKER DOLLAR

While emerging market currencies like the rand and major currencies like the CAD aren't directly comparable, it is interesting to analyze the recent price action of the two commodity currencies in light of a softer dollar.

Headline inflation in South Africa came close to the upper side of the 3% - 6% target band yesterday at 5.9% which had little to no bearing on the recent USD/ZAR turnaround. The rand had enjoyed a prolonged period of strength, boosted by soaring commodity prices, mainly: gold, platinum and iron ore which have stabilized to some degree.

The move was rather surprising as commodity prices are still elevated and the dollar appears softer in the last 48 hours. In local news, the SA president declared a state of disaster in the coastal province of KwaZulu-Natal in light of the recent flooding, estimated to have caused R5.6 billion worth of damage, just to transport infrastructure. USD/ZAR resistance all the way at 15.50 with support coming in at 15.00 flat.

USD/ZAR Daily Chart

US Dollar Outlook: Analyzing the Dollar Dip for USD/CAD and USD/ZAR

Source: TradingView, prepared by Richard Snow

 

--- Written by Richard Snow for DailyFX.com. 21st April 2022

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      22,142
    • Total Posts
      93,030
    • Total Members
      42,526
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    mshand101
    Joined 07/06/23 08:38
  • Posts

    • The US Securities and Exchange Commission (SEC) has sued cryptocurrency platform Coinbase the second lawsuit in two days against a major crypto exchange.  Angeline Ong | Presenter, Analyst and Content Editor, London | Publication date: Wednesday 07 June 2023  IGTV’s Angeline Ong takes a look at the differences between the SEC’s crackdown on Binance and Coinbase, and why this could be a gamechanger for the crypto industry. (Video Transcript) SEC cracks down on cryptos The crypto crackdown is escalating as the SEC has issued a lawsuit against Coinbase, the second in two days against a major crypto exchange. Now on Monday, the SEC targeted Binance, the world's largest cryptocurrency exchange. The two cases are of a different nature though with the SEC accusing Binance and its CEO, Chang Ping Tao of operating a "web of deception", while with Coinbase, the regulator considers it is operating illegally because it failed to register as an exchange. Now, if successful, these lawsuits could trigger a major change in the crypto world, asserting the SEC's jurisdiction over it. So far, the industry's argument is that tokens do not constitute securities and should not be regulated by the SEC. Coinbase share price chart Just checking in on Coinbase, which is on all-session stock on IG. It fell almost 10% in the previous session.
    • Spotify Inc., Elliott Wave Technical Analysis Spotify Inc., (SPOT:NASDAQ): Daily Chart, 7 June 23, SPOT Stock Market Analysis: We have witness an outstanding up move in Spotify as we rallied over 100% from the bottom at around 70$. It looks like we are looking for a potential top soon as we seem to be having different reasons to believe so.   SPOT Elliott Wave Count: Wave (v) of {v}. SPOT Technical Indicators: Above all averages. SPOT Trading Strategy: Looking for a down move to begin the correction soon.   TradingLounge Analyst: Alessio Barretta Source : Tradinglounge.com get trial here!   Spotify Inc., SPOT: 4-hour Chart, 7 June 23 Spotify Inc., Elliott Wave Technical Analysis SPOT Stock Market Analysis: As you can see we are looking at a potential ending diagonal in wave {v} as we encounter resistance which is visible on the daily chart and I highlighted the area in yellow. We have RSI bearish divergence suggesting we could be due a pullback.   SPOT Elliott Wave count:  Wave (v) of {v}. SPOT Technical Indicators: Above all averages. SPOT Trading Strategy: Looking for a sudden drop to confirm the end of the uptrend. 
    • Stocks in Asia managed to move higher overall, though weakness in Japan was the outlier. A poor performance from China's trade data raised hopes that some form of stimulus might eventually come to pass in the world's second-largest economy, as the slowdown intensifies. Markets remain relatively quiet overall, as the focus shifts to next week's clutch of central bank meetings. Yesterday's more hawkish RBA may give the Bank of Canada cover to raise rates once again, defying general expectations of a pause.   
×
×
  • Create New...