Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD was under pressure early in the week with USDCAD hitting a 5 month high (1.3280) Monday evening after some dovish comments by Bank of Canada Governor Poloz. The weakness was short-lived as USDCAD dropped to 1.3164 within a few hours as markets scored a round 1 victory to Hilary Clinton in the first of three presidential debates. Volatility remained high over the next 4 days with USDCAD climbing back to 1.3280 on Tuesday before falling to 1.3048 Wednesday evening after a surprise OPEC announcement confirmed a production freeze agreement for November. The CAD gave up the bulk of its gains Thursday as global equity markets sold off sharply on fears surrounding Deutsche Bank's ability to survive a $14 billion fine. On Friday, markets reversed course yet again on reports the fine would be just $5.4 billion. Oil remained well bid, while Canadian July GDP beat expectations. The CAD rallied sharply on Friday to close the week with gains vs. USD, EUR, GBP, and JPY.
Weekly Open | Low | High | Weekly Close | |
USDCAD | 1.3170 | 1.3048 | 1.3280 | 1.3125 |
EURCAD | 1.4785 | 1.4631 | 1.4920 | 1.4750 |
GBPCAD | 1.7081 | 1.6986 | 1.7232 | 1.7030 |
JPYCAD | 0.01304 | 0.01284 | 0.01325 | 0.01294 |
AUDCAD | 1.0045 | 0.9955 | 1.0156 | 1.0060 |
Themes for the week:
*MXN, AUD, and CAD outperform while USD flat vs. EUR, GBP, and JPY
*Trump / Clinton debate – markets signal Clinton the victor - CAD and MXN soar
*Another crude oil inventory draw - surprise draws of 23.154 million barrels of crude oil from inventories over the past month vs. expectations of a build of 10.37 million barrels
*Oil prices gain 12% on the month - OPEC production freeze announcement (USDCAD dropped from 1.3270 down to 1.3048 in the hours after)
*AUDCAD rate tests 2 year high (near 1.0156)
*Deutsche Bank fine inspires market volatility – CAD gives up post-OPEC gains
*U.S. GDP Q2: 1.4% (exp. 1.3% / prev. 1.1%)
* JPYCAD tests ~ 5 year high (0.01325) Thursday on risk aversion flows
*Canadian GDP (July): 0.5% (exp. 0.3% / prev. 0.6%) – USDCAD falls from 1.3180 down to 1.3086 / CAD broadly recovers
On Tap for Next week:
Wednesday, Oct. 5: EIA crude oil inventories
Canada trade balance: (exp. -$2.60 billion / prev. -$2.49 billion)
Friday, Oct. 7th: Canada net employment change: (exp. 10,000 / prev. 26,200)
Canada unemployment rate: (exp. 7.0% / prev. 7.0%)
U.S. non-farm payrolls: (exp. 170,000 / prev. 151,000)
U.S. unemployment rate: (exp. 4.9% / prev. 4.9%)
USDCAD closed the week well off of Tuesday's 5 month high of 1.3280. Positive market sentiment returned on Friday while oil closed the week near a 1 month high. The strong July GDP data for Canada puts less pressure on the Bank of Canada to cut interest rates. Mixed U.S. data resulted in another downgrade by a leading forecaster – the Atlanta Fed sees U.S. 3rd quarter growth at just 2.4% (down from 3.6% in August). Canada saw strong full-time job gains last month (+ 52,200) and should that trend continue, USDCAD should see downward pressure next week.
Topside targets to consider: 1.3140, 1.3190, 1.3270, 1.3300
Downside targets to consider: 1.3090, 1.3030, 1.3000, 1.2950
Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada, U.S. Federal Reserve, CNBC, Forexlive, CMEGroup