VBCE Weekly Foreign Exchange Wrap Up for Feb. 13 – Feb. 17, 2017

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

The main theme this week was the inability of the USD to hold its gains or sustain any sort of rally after strong results for inflation and retail sales data in addition to hawkish U.S. Fed rhetoric from Janet Yellen. Odds of a March interest rate hike climbed while equity markets eased back from historical levels during the latter part of the week. Markets generally appear to be sidelined ahead of specifics from Trump's highly anticipated Tax Reform Plan. The CAD was largely unchanged on the week although it enjoyed some modest strength vs. the EUR and the JPY early in the week only to have the gains erased into Friday's session. The EURCAD rate came close to 1.3800 – the lowest level since June of 2015 while the JPYCAD rate came close to a 1 year low, driven by positive market sentiment as global markets pushed historical highs. Over Thursday and Friday, the AUD and the CAD were the worst performing currencies given the mild pull-back in global equity and commodity indices.

Themes for the week:

*USD largely unphased by strong data and hawkish Fed comments / USDCAD holds narrow ~ 1 cent trading range for the week

*Oil (WTI) holds $52.76 - $53.69 range (nearly 3 months in a $52 - $54 range) despite 2^nd consecutive larger than expected inventory build (EIA +9.527 million barrels / exp 3.513 million / last week = +13.83 million vs. exp. 2.529 million)

*U.S. producer price index m: 0.6% (exp 0.3%/prev 0.3%) y: 1.6% (exp 1.5%/prev 1.6%)

*U.S. Fed Yellen testimony – likely to raise rates at coming meetings / March is live

*Canada manufacturing sales: 2.3% (exp 0.2% / prev 2.3%)

*U.S. retail sales: 0.4% (exp 0.1% / prev 1.0%)

*U.S. CPI m/m: 0.6% (exp 0.3% / prev 0.3%) y/y: 2.5% (exp 2.4% / prev 2.1%)

On Tap for Next week:

Wednesday, Feb. 22: Canada retail sales: exp 0.1% / prev 0.2%

U.S. FOMC meeting minutes

Friday, Feb. 24: Canada CPI m/m: exp 0.3% / prev -0.2% y/y: exp 1.6% / prev 1.5%

For the 3rd straight week, the CAD traded with a more neutral bias with its USD counterpart. The trading range - barely 1 cent – was one of the narrowest in recent years. Technically, USDCAD moved up above and remained above the 100 hour moving average (near 1.3070) on Friday, but there were three tests of the 1.3125 level during the week that all resulted in a move back below the 1.3100 level. Next week, the CAD will likely continue to trade with a neutral bias with CAD gains accelerating on a sustained break of 1.30 / USD gains accelerating on a sustained break of 1.3200.

Topside targets to consider: 1.3125, 1.3170, 1.3211, 1.3388

Downside targets to consider: 1.3063, 1.3020, 1.2985, 1.2967

2016 CAD Summary