​VBCE Weekly Foreign Exchange Wrap Up for Dec. 5 – Dec. 9, 2016

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

The CAD was the best performing currency this week despite very little movement in oil prices. Global equity markets continue to make historical gains while the EUR, USD, and JPY broadly weakened. The Bank of Canada affirmed its neutral bias towards monetary policy while keeping its key rate on hold at 0.50%. The EURO saw an initial move up after the ECB announced a tapering of its quantitative easing (QE) program from EUR80 billion / month to EUR60 billion / month. However, they also extended the QE program and indicated the amount of QE could increase if low inflation persists sending the EURO broadly lower. The EURCAD rate dropped to 1.3867 - an 18 month low. Since the U.S. election, the EURCAD rate has fallen by nearly 20 cents. USDCAD broke below the 1.3250 support level after the Bank of Canada announcement and subsequently declined to a 6 week low on Friday.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3290

1.3157

1.3350

1.3175

EURCAD

1.4180

1.4355

1.3867

1.3915

GBPCAD

1.6916

1.6542

1.6973

1.6565

JPYCAD

0.01171

0.01142

0.01181

0.01143

AUDCAD

0.9912

0.9927

0.9790

0.9813

Themes for the week:

*CAD and GBP continue to outperform on overall positive market sentiment

*EUR and JPY declines continue – holding near 18 month low / 7 month low respectively

*Oil flat in a $49.64 - $51.61 range ahead of Non-OPEC meeting

*Canada trade deficit: $1.13 billion (exp $2.00 billion / prev $4.38 billion)

*Canada Ivey PMI: 56.8 (exp 59.9 / prev 59.7)

*Bank of Canada interest rate policy: 0.50% (exp. 0.50% / prev 0.50%) / neutral stance

*U.S. trade deficit: $42.6 billion (exp $41.80 billion / prev $36.20 billion)

*ECB interest rate policy: 0% (exp 0% / prev 0%)

On Tap for Next week:

Wednesday, Dec. 14: U.S. core producer price index m/m: exp 0.20% / prev -0.20%

U.S. core PPI y/y: exp 1.3% / prev 1.2%

U.S. core retail sales: exp 0.4% / prev 0.8%

U.S. Fed interest rate decision: exp 0.75% / prev. 0.50%

Thursday, Dec. 8: Bank of England interest rate: exp 0.25% / prev 0.25%

U.S. core CPI m/m: 0.2% / prev 0.1% y/y: 2.2% / prev. 2.1%

The CAD continues to benefit from the overall positive risk sentiment in the global markets along with oil prices holding near 18 month highs. The U.S. Fed will most likely raise its key interest rate to 0.75% at the Wednesday, Dec. 14th meeting. Markets will look towards further hawkish sentiment along with the Fed's economic forecasts and interest rate path (Dot Plot) forecast. The USD uptrend is widely expected to resume as all major Canadian banks are forecasting higher USDCAD rates for 2017 from 1.34 to 1.45.

Topside targets to consider: 1.3190, 1.3240, 1.3315, 1.3440

Downside targets to consider: 1.3115, 1.3010, 1.2950, 1.2855

USDCAD 2017 Forecast (Canadian Banks) as of Dec. 2, 2016

Bank

2017 Q1

2017 Q2

2017 Q3

2017 Q4

HSBC

1.40

1.45

1.45

1.45

TD Canada Trust

1.34

1.34

1.34

1.34

National Bank

1.38

1.40

1.39

1.37

RBC

1.35

1.38

1.38

1.38

CIBC

1.39

1.37

1.36

1.37

BMO

1.3560

1.3680

1.3810

1.3740

Scotia Bank

1.38

1.40

1.38

1.36

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Disclaimer


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.