VBCE Weekly Foreign Exchange Wrap Up for August 7 – 11, 2017

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

The CAD had a mixed performance this week although it was the best performing currency on Friday. The loonie was largely unchanged vs. the GBP and AUD while losing ground against the USD, EUR, and JPY. The bulk of the losses were recouped during Friday's session that saw oil prices bounce 2% higher off of 1 week lows near $48 earlier in the session. Global equity markets have been falling most of the week as tensions between North Korea and the U.S. remain elevated. Risk aversion flows benefitted the JPY – the top performer this week reaching a 4 month high vs. the USD and a 6 week high vs. the CAD. Friday's session saw North American equity markets halt a 3 day slide after the U.S. posted lower than expected CPI inflation data. Coupled with weak PPI inflation data released Thursday, the probability of a December interest rate hike by the U.S. Fed has almost halved since early July to just 28.9%. USDCAD found support at 1.2675 on Thursday morning and tested a 1 month high of 1.2753 during Friday's Asian session. The pairing then dropped to a 4 day low of 1.2653. A subsequent attempt to regain the 1.2700 level failed (the pairing briefly tested the 1.2710-15 area after the fall to 1.2653) and USDCAD held a 1.2660 – 1.2685 range for the balance of the session.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2646

1.2630

1.2753

1.2672

EURCAD

1.4891

1.4850

1.5018

1.4976

GBPCAD

1.6488

1.6423

1.6564

1.6495

JPYCAD

0.01143

0.01140

0.01170

0.01161

AUDCAD

1.0027

0.9980

1.0060

1.0003

Themes for the week:

*USD correction phase complete? – USD gains reversed on Friday on weak inflation data / rebound in commodity and equity markets – DXY(USD index) falls to 26 month low

*WTI crude oil flat in a $48.02 - $50.39 range – continues to hold near 2 month highs

*Crude oil inventories: -6.451 million barrels (exp -2.72 million / prev -1.527 million)

*U.S. producer price index m:-0.1% (exp 0.1%/prev 0.1%) y:1.9% (exp 2.2%/prev 2.0%)

*U.S. PPI core m/m: -0.1% (exp 0.2% / prev 0.1%) y/y: 1.8% (exp 2.1% / prev 1.9%)

*U.S. consumer price index m: 0.1% (exp 0.2%/prev 0%) y: 1.7% (exp 1.8%/prev 1.6%)

*U.S. CPI core m/m: 0.1% (exp 0.2% / prev 0.1%) y/y: 1.7% (exp 1.7% / prev 1.7%)

*U.S. Dec rate hike probability declines - was 56% in early July – now just 28.9%

On Tap for Next week:

Tue Aug 15: U.S. retail sales: exp 0.4% / prev -0.2% Core: exp 0.3% / prev -0.2%

Wed Aug 16: U.S. FOMC meeting minutes

Thur Aug 17: U.S. industrial production: exp 0.3% / prev 0.4%

Fri Aug. 18: Canada CPI m/m: exp 0.1% / prev -0.1 % y/y: exp 1.2% / prev 1.0%

Technically, USDCAD is neutral / slightly bearish. USDCAD saw three consecutive days of higher "highs" before falling to test Tuesday's low near 1.2650 on Friday. USDCAD will need to sustain gains through the 1.2720 – 1.2770 resistance zone to confirm a bullish bias. A sustained break of 1.2650 will be required to re-trigger the bearish trend in place over the May/June/July time period.

Topside targets to consider: 1.2710, 1.2750, 1.2770, 1.2860

Downside targets to consider: 1.2650, 1.2605, 1.2550, 1.2500

USDCAD 2017 Forecast (Canadian Banks) Aug. 2017

Bank

2017 Q3

2017 Q4

2018 Q1

HSBC

1.25

1.25

N/A

TD Canada Trust

1.25

1.28

1.27

National Bank

1.25

1.29

1.30

RBC

1.25

1.30

1.31

CIBC

1.28

1.30

1.33

BMO

1.2667

1.29

1.28

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.