​VBCE Weekly Foreign Exchange Wrap Up for Oct. 31 – Nov. 4, 2016

VBCE Weekly Foreign Exchange Wrap Up for Oct. 31 – Nov. 4, 2016

Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca

Despite several central bank announcements, top-tier data releases, risk aversion flows, not to mention a 10% drop in oil prices; the CAD remained relatively unchanged against its USD counterpart. Oil prices slid 10% as EIA reported the largest oil inventory build on record. This effectively negates the large draws from Sept / Oct that saw oil prices jump to 15 months highs near $52 and factored in to why the CAD did not materially weaken. USDCAD remained range-bound between 1.3360 – 1.3420 for much of the week before briefly taking out last week's 1.3434 high earlier this morning after the jobs report. At first glance, Canada added nearly 54,000 more jobs than what was expected. However, all of the 23,000 full time jobs from the previous month were lost while the unemployment rate remained steady at 7%. USDCAD briefly traded up to a new 8 month high at 1.3465 but fell back to 1.3390 within minutes.

The U.S. Fed announcement which typically results in market volatility was a non-event this week. The Fed indicated that they were getting closer to a rate hike with December Fed funds futures now priced in at 66.8%.

"The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further

evidence of continued progress toward its objectives."

The USD weakened against most major currencies despite the hawkish Fed statement and strong employment report. Equity markets lost ground nearly every day this week as investors pared positions ahead of next Tuesday's U.S. presidential election.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3395

1.3354

1.3465

1.3402

EURCAD

1.4715

1.4651

1.4961

1.4935

GBPCAD

1.6330

1.6281

1.6853

1.6774

JPYCAD

0.01279

0.01274

0.01305

0.01299

AUDCAD

1.0179

1.0164

1.0323

1.0270

Themes for the week:

*GBP the star performer as UK court ruling reduces probability of a "Hard Brexit" – GBP gains 5 cents reaching a 1 month high

*AUD outperforms on economic optimism / neutral RBA statement – AUDCAD tests 1.03 – highest level since May 2013

*Canada GDP (Aug): 0.2% (exp. 0.2% / prev. 0.4%)

*Bank of Japan interest rate decision: -0.10% (exp. -0.10% / prev. -0.10%)

*Reserve Bank of Australia interest rate decision: 1.5% (exp. 1.5% / prev. 1.5%)

*U.S. Fed interest rate decision: 0.5% (exp. 0.5% / prev. 0.5%)

*Bank of England interest rate decision: 0.25% (exp. 0.25% / prev. 0.25%)

*EIA crude oil inventories: +14.42 million barrels (exp. 1.103m / prev. -0.553m)

*Canada net employment change: 43,900 (exp. -10,000 / prev. 67,200)

*Canada unemployment rate: 7% (exp. 7% / prev. 7%)

*Canada trade balance: -$4.08 billion (exp. -$1.70 billion / prev. -$1.99 billion)

*U.S. non-farm payrolls: 161,000 (exp. 175,000 / prev. 191,000)

*U.S. unemployment rate: 4.9% (exp. 4.9% / prev. 5.0%)

*U.S. average hourly earnings: 0.4% (exp. 0.3% / prev. 0.3%)

*U.S. trade balance: -$36.44 billion (exp. -$37.80 billion / prev. -$40.46 billion)

*Atlanta Fed revises U.S. GDP Q4 from 2.3% to 3.1%

*Oil prices fall for 3rd consecutive week – WTI loses 10% from $48.71 to $43.60

*U.S. Fed funds probability for Dec. rate hike edges lower from 71.5% to 66.8% as U.S. Presidential elections looms large

On Tap for Next week:


Tuesday, Nov. 8: U.S. Presidential Election

With USDCAD virtually unchanged on the week, the next direction in trend will be largely influenced by the outcome of Tuesday U.S. election. Should Donald Trump win, the USD would probably weaken. There may be some initial CAD weakness with regards to risk aversion flows but the ensuing market volatility would most likely result in the Fed refraining from a December interest rate hike thus broadly weakening the USD. Markets are more or less pricing in a Clinton victory. The USD would probably gain back some of the ground lost in recent weeks. However, once the market gets beyond a December rate hike and looks for further Fed tightening in 2017, the USD may trend lower as the Fed has maintained that interest rates will be kept lower for longer. Volatility will be elevated with the U.S. Presidential election the major market determinant next week.

Topside targets to consider: 1.3430, 1.3450, 1.3465, 1.3500

Downside targets to consider: 1.3350, 1.3314, 1.3280, 1.3225

Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada, U.S. Federal Reserve, CNBC, Forexlive, CMEGroup

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The information and opinions contained herein are gathered from sources which are thought to be reliable but the reader should not assume that the information and opinions are official or final. VBCE makes no warranty concerning the accuracy of the information and opinions, and accepts no liability for the consequences of any actions taken on the basis of the information and opinions provided. The content is for general information only and does not constitute in anyway giving financial advice.