VBCE Weekly Foreign Exchange Wrap Up for June 12 –16, 2017

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

The CAD was the top performer this week after Bank of Canada officials signaled a shift to a more hawkish tone with regards to the Bank of Canada's monetary policy. The BOC had been neutral for the past several months with market expectations of interest rate "lift-off" at some point during the first half of 2018. USDCAD plunged from 1.3470 towards 1.3320 on the news. The down trend continued to 1.3165 before a round of broad-based USD strength took the pairing back up to 1.3300 after Fed Chair Yellen came across more hawkish than anticipated. The U.S. Fed outlook remained largely unchanged from the previous meeting despite recently weak U.S. economic data (U.S. inflation forecasts have missed to the downside for 4 consecutive months). The down trend resumed on Friday with USDCAD falling from 1.3273 down to 1.3209 and holding near the lows into the close.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3466

1.3165

1.3475

1.3210

EURCAD

1.5077

1.4763

1.5109

1.4788

GBPCAD

1.7160

1.6795

1.7169

1.6884

JPYCAD

0.01220

0.01188

0.01228

0.01191

AUDCAD

1.0140

0.9960

1.0146

1.0054

Themes for the week:

*CAD best performing currency this week as Bank of Canada top officials signal shift from neutral to hawkish – probability of 2017 rate hike near 90%

*USDCAD closes week near 4 month low below key levels (1.3225, 1.3325, and former trendline @ 1.3480)

*WTI crude drops 5% from $46.69 to $44.24 before closing week @ $44.65

*Bank of Japan (BOJ) interest rate decision: -0.10% (exp -0.10% / prev -0.10%)

*U.S. producer price index: 0% (exp 0.1% / prev 0.5%) y/y:2.4% (exp 2.3% / prev 2.5%)

*U.S. retail sales: -0.3% (exp 0.1% / prev 0.4%)

*U.S. CPIm/m: -0.1% (exp 0.1% / prev 0.2%) y/y: 1.9% (exp 2.0% / prev 2.2%)

*U.S. Fed interest rate decision: raise 25bp to 1.25% (exp. 1.25% / prev 1.00%)

*U.S. 3rd rate hike probability for 2017 ~ 39%

*U.S. 10 year yield remains near 8 month lows ~ 2.15% despite Fed forecasts (relatively unchanged from March)

On Tap for Next week:

Thursday June 22: Canada retail sales: exp 0.3% / prev 0.7%

Friday June 23: CPI m/m: exp 0.3% / prev 0.4% y/y: exp 1.5% / prev 1.6%

Technically, USDCAD is strongly bearish having fallen as much as 3 cents this week, the largest weekly fall in 2017. Despite some brief USD strength after Wednesday's Fed announcement, the USD gains have come undone and the USD closes the week as one of the worst performing currencies just ahead of the JPY. There was some dovish commentary from a U.S. Fed member on Friday that contradicted the more hawkish tone from Fed Chair Yellen on Wednesday. Several Fed members are slated to speak next week. Although Fed rate hike forecasts remain largely unchanged from the March meeting, economic data has been soft over the past 4 months and the market remains unconvinced that the Fed can maintain the pace of subsequent hikes. Although the Fed indicates another hike in 2017, the market is pricing in just a 39% chance. In Canada, rate hikes were not anticipated to begin until spring of 2018. After this week's comments from Bank of Canada officials, the chance of a 2017 rate hike is 90% with odds of two additional hikes next year. The USD closed the week near its lows and looks poised for further losses next week.

Topside targets to consider: 1.3280, 1.3325, 1.3480, 1.3520, 1.3547

Downside targets to consider: 1.3165, 1.3100, 1.3070, 1.3030, 1.2970

USDCAD 2017 Forecast (Canadian Banks) May 2017

Bank

2017 Q3

2017 Q4

2018 Q1

HSBC

1.35

1.35

N/A

TD Canada Trust

1.3158

1.2987

1.2987

National Bank

1.36

1.32

1.29

RBC

1.39

1.40

1.38

CIBC

1.36

1.34

1.32

BMO

1.3550

1.34

1.3250

Scotia Bank

1.38

1.28

N/A

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, BNN

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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.