USD/CAD gains downside momentum. Democrats won effective control of the Senate this week, giving President-elect Joe Biden scope to push through more spending, which analysts say will be negative for bonds and the dollar.

In this week, U.S. reported that ISM Manufacturing PMI increased from 57.5 in November to 60.7 in December while analysts believed that it would decline to 56.6. The manufacturing segment remains strong despite the second wave of the virus which is good for riskier assets.

The U.S. reported that Initial Jobless Claims declined from 790,000 (revised from 787,000) to 787,000 while Continuing Jobless Claims decreased from 5.2 million (revised from 5.22 million) to 5.07 million. The reports were a bit better than analysts expected but it is clear that the job market needs additional support.

On the other hand, For the past several months, BOC Governor Tiff Macklem has been crystal clear regarding the BOC’s crisis policies, saying that “if you are a household considering making a major purchase, if you’re a business considering investing, you can be confident that interest rates will be low for a long time.” Recall that at the December BOC rate decision, BOC Governor Macklem suggested that rates could remain at their ultra-low level, “probably” until 2023.

Accordingly, neither interest rate cut nor hike expectations have produced any significant movement since the remarks made last month by BOC Governor Macklem. Through December 2021, there is only a 7% chance of a 25-bps rate cut by the BOC. Having previously dismissed the possibility of negative interest rates, this seems like a non-issue for the Canadian Dollar.

USD/CAD 4 Hour Chart:

Support: 1.2658 (S1), 1.2625 (S2), 1.2587 (S3).

Resistance: 1.2728 (R1), 1.2766 (R2), 1.2798 (R3).

Investors now await U.S. nonfarm payrolls later on Friday for clues on whether significantly more stimulus will be needed to keep the economic recovery alive. In the meantime we expect a bearish trend for USD/CAD.