China's Economic Slowdown and its Effect on USDCAD

By Camilo Botia, CSC?

The Canadian dollar has gained slightly against the U.S. dollar for the third consecutive day on Thursday. Nevertheless, the Loonie has remained in a downtrend throughout August due to the impact of China's economic slowdown on commodity-linked currencies.

In the final three days of August, the Canadian dollar recovered approximately 1%, trading just above $1.3500. However, it experienced a notable decline of 2.4% throughout August, marking its most significant monthly drop since February. The ongoing concerns surrounding China and their implications for global economic growth and commodity demand have had a negative effect on the Canadian currency. This is particularly significant because Canada heavily relies on oil exports, and there exists a strong correlation between the Canadian dollar and oil prices.

Additionally, Canada's GDP report for the second quarter is expected to reveal a significant economic slowdown. This situation might prompt the Bank of Canada to reconsider its plans for interest rate hikes, despite recent reports of higher inflation, potentially leading to a depreciation of the Canadian dollar.

Looking at the chart, the price is currently testing levels just above the $1.3500 support level. The next significant support level the price would encounter is the 200-day moving average at $1.3461 if the bearish movement persists.

However, there is a clear upward trend during August, supported by the ADX indicator, which suggests a significant upward trend throughout the month, currently around 33.69 points. Therefore, there are no signs of overbuying, and the price could potentially reach new highs. The highest price reached during the month was $1.3640, which is the nearest resistance level. Further up, the $1.3800 level serves as the most relevant upper limit the pair could reach if the bullish momentum of August continues.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

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