VBCE Weekly Foreign Exchange Wrap Up for 8-12, 2017

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

USDCAD opened the week near the 1.3650 support level – a level that has contained downside moves since April 28th. The pairing moved higher testing the 1.3730 level Tuesday and Wednesday before a surprise draw in oil inventories saw oil prices gain 3% sending USDCAD lower to test the 1.3650 level once again. The pairing broke back above 1.37 on a report that Moody's investor service was downgrading the credit ratings of the Big 6 Canadian banks. A quick move to 1.3770 Thursday AM fell short of last week's post-employment data spike high of 1.3787 (and the earlier 14 month high of 1.3794) and USDCAD closed below the 1.3700 level. Despite disappointing U.S. retail sales and inflation data on Friday, USDCAD managed to bounce back and close the week just above the 1.37 mark after having fallen from 1.3742 down to 1.3665 earlier in the day. Overall, the CAD finished the week largely unchanged vs. the other major currencies after having weakened to 11 month and 14 month lows against the GBP and EUR respectively last week. Oil enjoyed its first weekly gain in 5 weeks having rebounded nearly 10% from last Friday's 6 month low.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3650

1.3640

1.3770

1.3704

EURCAD

1.5013

1.4826

1.5020

1.4983

GBPCAD

1.7719

1.7603

1.7817

1.7662

JPYCAD

0.01211

0.01194

0.01218

0.01209

AUDCAD

1.0128

1.0017

1.0156

1.0118

Themes for the week:

*USDCAD consolidates in a 1.3650 – 1.3770 range after 10 straight days of gains the previous two weeks

*Oil prices gain 5% - largest weekly gain in 5 weeks from $45.86 to $48.13

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

*U.S. CPI m/m: 0.2% (exp 0.2% / prev -0.3%) y/y: 2.2% (exp 2.3% / prev 2.4%)

*U.S. CPI Core: 0.1% (exp 0.2% / prev -0.1%) y/y: 1.9% (exp 2.0% / prev 2.0%)

*U.S. retail sales: 0.4% (exp 0.6% / prev 0.1%) core: 0.3% (exp 0.5% / prev 0.3%) U.S. *U.S. June rate hike probability slips to 73% (from 90%+ after last week's Fed interest rate announcement)

On Tap for Next week:


Tues. May 16: U.S. industrial production: exp 0.3% / prev 0.5%

Wed. May 17: Canada manufacturing sales: exp 1.0% / prev -0.2%

U.S. crude oil inventories: prev -5.247 million barrels

Fri. May 18: Canadian retail sales: exp 0.4% / prev -0.6%

Canadian CPI m/m: exp 0.5% / prev 0.2% y/y: exp 1.7% / prev 1.6%

Technically, USDCAD traded with a neutral bias this week, finding support near the 1.3650 level while unable to sustain trade / close above the 1.3740 level. With oil prices trending higher and Canadian inflation and retail sales data set to improve, the risk may be tilted to the downside for the pairing next week.

Topside targets to consider: 1.3740, 1.3770, 1.3790, 1.3850

Downside targets to consider: 1.3650, 1.3620, 1.3530, 1.3410

USDCAD 2017 Forecast (Canadian Banks) April 2017

Bank

2017 Q2

2017 Q3

2017 Q4

HSBC

1.37

1.35

1.35

TD Canada Trust

1.36

1.34

1.33

National Bank

1.36

1.38

1.35

RBC

1.38

1.38

1.38

CIBC

1.35

1.36

1.34

BMO

1.3530

1.3550

1.3400

Scotia Bank

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

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.