​VBCE Weekly Foreign Exchange Wrap Up for Jan. 9 – Jan. 13, 2017

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

The CAD was off to another great week before giving up its gains Thursday and Friday. The USD and the GBP lagged while the JPY and the AUD outperformed. The CAD generally followed broad market sentiment this past week with no key economic releases out of Canada. Also, the correlation with oil prices appeared to have loosened for the 3rd consecutive week. Technically, USDCAD broke below the December low of 1.3080 and tested a 3 month low near 1.3030 but this move was quickly rejected with markets swiftly sending USDCAD back up towards 1.3170. Although the Trump speech did little to buoy the USD, economic data and hawkish statements from various U.S. Fed members helped the USD to recover during the latter part of the week.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3255

1.3030

1.3295

1.3120

EURCAD

1.3960

1.3855

1.4035

1.3966

GBPCAD

1.6261

1.5946

1.6261

1.5990

JPYCAD

0.01132

0.01128

0.01155

0.01142

AUDCAD

0.9682

0.9663

0.9865

0.9840

Themes for the week:

*USDCAD touches 3 month low but sees modest bounce

*USD sees broad declines mid-week as Trump speech lacks fiscal policy, economic policy specifics

*Oil (WTI) declines 3% on the week trading between $50.75 - $53.80 (closes near $52.40)

*U.S. retail sales: 0.6% (exp 0.7% / prev 0.2%) core: 0.2% (exp 0.5% / prev 0.3%)

*U.S. producer price index y/y: 1.6% (exp 1.6% / prev 1.3%)

*U.S. Fed speakers – hawkish consensus – see 2 – 3 interest rate hikes in 2017

On Tap for Next week:


Wednesday, Jan. 18: Bank of Canada interest rate decision: exp unchanged @ 0.50%

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

Thursday, Jan. 19: European Central Bank interest rate decision: exp. unchanged @ 0%

Friday, Jan. 20: Canada CPI m/m: exp -0.1% / prev -0.4% y/y: exp 1.7% / prev 1.2%

Canada retail sales: exp 0.5% / prev 1.1% core: exp 0.2% / prev 1.4%

The CAD finished the week mixed and looks poised to lose further ground. The Bank of Canada makes its key policy announcement on Wednesday (7:00am followed by an 8:15 am press conference) and is widely expected to maintain a neutral bias and hold rates steady at 0.50%. Going back to December 22/23, Canada's core CPI inflation measure declined from 1.7% to 1.5% - well below the BOC's target. Also, GDP declined by 0.3% in October after having gained 0.4% in September – another reason for concern. Given that USDCAD has been unable to close below the 1.3100 level after numerous attempts last week, I expect USDCAD to trend higher in the near term.

Topside targets to consider: 1.3170, 1.3295, 1.3320, 1.3460

Downside targets to consider: 1.3110, 1.3080, 1.3030, 1.2930

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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.