USD/CAD nosedives from six-week highs, back below 1.3000

• USD/CAD erases its Monday gains and slides more than 0.60%.
• Weaker US housing and PMI data weighed on the greenback.
• TDS Analysts expect the BoC will hike 75 bps in September; estimates the first cut in Q3 2023.

The USD/CAD stumbles from weekly highs around 1.3063 and plunged on weaker than expected US economic data, which reignited US recession fears amidst a week where traders are bracing for Fed Chair Jerome Powell’s speech.

The USD/CAD is trading at 1.2069, below its opening price, after hitting a daily high at 1.3063, followed by a dip towards its daily low at 1.2933, before settling at current exchange rates.

USD/CAD tumbled on weak US housing/PMI data

Earlier in the North American session, S&P Global reported that the US Services PMI for August plunged to contractionary territory, with a reading of 44.1, while the Composite Index followed suit at 47. Contrarily, the Manufacturing PMI, although it slowed, persisted in an expansionary territory at 51.3, less than estimated.

Furthermore, US housing data showed that New Home Sales dived to its slowest pace since 2016, falling for the sixth consecutive month, as the market continues to deteriorate as the Federal Reserve tightens monetary policy. New Home Sales dropped by 0.51M vs. estimations of 0.575M.

Aside from this, the USD/CAD slid from around 1.3010s to 1.2975 on the release of US data. An absent Canadian docket let traders lean on the dynamics of the US dollar and oil prices. That said, WTI futures contracts rose 3.65%, exchanging hands at $93.89 per barrel.

TDS Analysts foresee a 75 bps increase by the BoC and expect the first cut in 2023

Elsewhere, TDS analysts estimate that the Bank of Canada will hike 75 bps in September. They wrote in a note, “We continue to look for the Bank of Canada to deliver a 75bp hike before a final 25bp hike for a 3.50% terminal rate by October.”

“While we look for a 3.50% terminal rate for the BoC’s tightening cycle, we also expect slowing growth will force the Bank to cut rates in starting in Q3 2023, before reaching a long-term neutral rate of 2.25% by mid-2024.”

What to watch

The US economic docket will feature Durable Good Orders for July, alongside Housing Data, illustrating that the US economy is slowing down on Wednesday.

USD/CAD Key Technical Levels