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.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3082

1.3010

1.3128

1.3098

EURCAD

1.3923

1.3794

1.3960

1.3894

GBPCAD

1.6336

1.6209

1.6406

1.6258

JPYCAD

0.01155

0.01141

0.01164

0.01160

AUDCAD

1.0046

0.9985

1.0090

1.0043

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 2nd 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

USDCAD 2017 Forecast (Canadian Banks) as of Jan. 2017

Bank

2017 Q1

2017 Q2

2017 Q3

2017 Q4

HSBC

1.40

1.45

1.40

1.40

TD Canada Trust

1.35

1.35

1.34

1.34

National Bank

1.38

1.40

1.39

1.37

RBC

1.35

1.38

1.38

1.38

CIBC

1.34

1.36

1.39

1.37

BMO

1.3320

1.3550

1.3770

1.3740

Scotia Bank

1.38

1.40

1.38

1.36

2016 CAD Summary

2016 Summary

2016 Open

Low

High

2016 Close

USDCAD

1.3840

1.2460

1.4692

1.3429

EURCAD

1.5040

1.3820

1.6106

1.4134

GBPCAD

2.0471

1.5726

2.0925

1.6550

JPYCAD

0.01149

0.01125

0.01335

0.01150

AUDCAD

1.0085

0.9326

1.0398

0.9691

083e3d7a6b

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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.