VBCE Weekly Foreign Exchange Wrap Up for July 3 – July 7, 2017

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

After closing the previous week as the top performer, the CAD consolidated in a fairly tight range amidst holiday trade early in the week. USDCAD held within a 1.2916 – 1.3016 range for much of the week until Friday morning's employment releases. Although the U.S. data was good, the Canadian data was again surprisingly strong sending USDCAD from 1.2990 down to 1.2860 – a 10 month low. What is even more surprising is the disappearance or lack of a correlation with oil prices. After another 7% decline this week (although prices recently bounced about 12% off of the June 22nd low of $42, WTI is down over 20% year to date), the CAD still managed to outperform and finish the week at multi-month highs vs. most major currencies.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2964

1.2860

1.3016

1.2877

EURCAD

1.4813

1.4659

1.4831

1.4610

GBPCAD

1.6888

1.6568

1.6904

1.6577

JPYCAD

0.01153

0.01158

0.01128

0.01129

AUDCAD

0.9970

0.9778

0.9983

0.9783

Themes for the week:

*CAD best performing currency for the 2nd straight week – trades near 10 month highs vs. the USD, 6 month highs vs. JPY, and 3 month highs vs. EUR & GBP

*WTI crude drops 7% from $47.25 to $43.80 despite larger than expected inventory draw (6.299 million barrels vs. exp 2.283 million)

*U.S. trade balance: -$46.50 billion (exp -$46.20 billion / prev -$47.60 billion)

*Canada trade balance: -$1.09 billion (exp -$0.53 billion / prev -$0.55 billion)

*Canada net employment: 45,300 (exp 10,000 / prev 54,500)

*Canada full time jobs: 8,100 (prev 77,000 )

*Canada unemployment rate: 6.5% (exp 6.6% / prev 6.6%)

*U.S. non-farm payrolls: 222,000 (exp 179,000 / prev 152,000)

*U.S. unemployment rate: 4.4% (exp 4.3% / prev 4.3%)

*U.S. average hourly earnings: 0.2% (exp 0.3% / prev 0.1%)

On Tap for This week:

Wednesday July 12: Bank of Canada interest rate: exp up 25bp to 0.75%

Friday July 14: U.S. core CPI m/m: exp 0.2% / prev 0.1% y/y: exp 1.7% / prev 1.7%

U.S. core retail sales: exp 0.2% / prev -0.3%

U.S. industrial production: exp 0.3% / prev 0.0%

Technically, USDCAD is bearish. After several failures to sustain trade above 1.30 last week, USDCAD broke below weekly support at 1.2920 on Friday on the back of the stronger than expected Canadian jobs report and testing a 10 month low of 1.2860. Wednesday's Bank of Canada rate decision looms large. The change in rhetoric by the Bank of Canada indicating a desire to reverse the two emergency 25 bp rate cuts made in 2015 has been well publicized in recent weeks. While not specifically confirming a rate hike, it has been alluded to in statements that the negative effects of past oil prices are largely behind us along with other optimistic and upbeat assessments of the Canadian economy. BOC Governor Poloz has also downplayed recent low inflation data suggesting that other economic indicators suggest that inflation will rise over the next 6-12 months.

Topside targets to consider: 1.2940, 1.3000, 1.3045, 1.3200

Downside targets to consider: 1.2860, 1.2825, 1.2760, 1.2680

USDCAD 2017 Forecast (Canadian Banks) July 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

1.34

1.30

1.27

RBC

1.27

1.30

1.31

CIBC

1.29

1.31

1.32

BMO

1.2950

1.31

1.3130

Scotia Bank

1.30

1.28

1.28

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.