FX Watch: Will NZD/CAD Extend Downtrend After Canadian CPI Release?

The NZD had quite a tough week last week as China growth concerns, weaker-than-expected domestic data and general risk aversion highlighted the relative weakness of the commodity-linked currency across the FX space.

Meanwhile, the Bank of Canada’s (BOC) willingness to explore deeper interest rate cuts does not bode well for the CAD. In fact, the oil-linked loonie failed to capitalize on last week’s recovery in crude oil prices.

This is probably why NZD/CAD, which has been making lower highs and lower lows since hitting resistance at .8475, bounced back from its .8315 lows to retest the .8400 psychological handle.

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NZD/CAD Hourly Forex Chart from TradingView

Will NZD/CAD extend its downtrend this week?

Our Canada’s CPI Report Event Guide suggests that we could see an easing of consumer price pressures in Canada in August. This supports dovish BOC speculation and could likely weigh on the Loonie.

USD/CAD Uptrend is a good setup to watch for a net negative CAD reaction.

But if the CPI reports reflect increased price pressures, then the CAD could recoup some of its losses.

The NZD, which showed early weakness following China’s data download rates over the weekend, could extend its downtrend against the CAD.

We are looking for bearish candlesticks around the .8400 psychological handle close to the R1 pivot point line (.8409) and a descending channel resistance.

A rejection and steady trading below .8400 opens the pair to a retest of its previous lows of .8320.

If Monday’s NZD rally gains momentum ahead of Canada’s CPI report, we can also consider a move to the .8425 inflection point before NZD bears take control of NZD/CAD price action .

Regardless of whether you choose to trade this setup, be sure to use the best risk management plans and watch the rest of the top catalysts so you don’t miss entry and exit opportunities!