VBCE Weekly Foreign Exchange Wrap Up for August 14 – 18, 2017

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

Heading into the week, the CAD had been the best preforming currency (previous Friday) with disappointing U.S. inflation data leading USDCAD from 1.2753 – a one month high down to 1.2653 – a 1 week low. The pairing looked poised for further downside but the CAD was under pressure early in the week with USDCAD trading up to 1.2770 – a one month high on Tuesday after the U.S. reported stronger than expected retail sales. Trade above the 1.2700 level was short-lived after the U.S. Fed minutes released Wednesday indicated that several Fed members were concerned that inflation may remain below the 2% target for longer than previously expected. The USD broadly weakened on the news as the chance of one last U.S. interest rate hike this year faded. USDCAD broke below the 1.2650 support level, extending down to 1.2588 in early Thursday trade. The pairing then reversed course during Thursday's North American session climbing up to 1.2680. A rebound in inflationary pressures in Canada coupled with a 3% surge in oil prices on Friday saw USDCAD break lower hitting 1.2557 – a new 2 week low. Overall, the CAD was the top performer this past week closely followed by the AUD.

Themes for the week:

*North Korean / U.S. rhetoric dissipates – risk aversion flows ease

*DXY(USD index) continues to hold near 26 month lows

*WTI falls 5% from $49.09 down to $46.49 before surging 3% on Friday to close week at $48.72

*Crude oil inventories: -8.945 million barrels (exp -3.058 million / prev -6.451 million)

*U.S. retail sales: 0.6% (exp 0.4% / prev 0.1%) Core: 0.5% (exp 0.3% / prev 0.1%)

*U.S. FOMC meeting minutes: Fed members divided – many feel that inflation may remain below the 2% target for longer than previously expected – December rate hike probability declines / USD broadly weakens

*Canada manufacturing sales: -1.8% (exp -1.0% / prev 1.3%)

*U.S. industrial production: 0.2% (exp 0.3% / prev 0.4%)

*Canada CPI m/m: 0.0% (exp 0.0%/prev -0.1%) y/y: 1.2% (exp 1.2% / prev 1.0%)

*CPI common: 1.4% (prev 1.4%) trim: 1.3% (prev 1.2%) median: 1.7% (prev 1.6%)

On Tap for Next week:

Tue Aug 22: Canada retail sales: exp 0.3% / prev 0.6% Core: exp 0.3% / prev -0.1%

Thur 24 / Fri Aug 25: Jackson Hole Economic Symposium

Fri Aug 25: U.S. durable goods orders: exp -6.0% / prev 6.4% Core: 0.4% / prev 0.1%

U.S. Fed Chair Yellen speaks

Technically, USDCAD is bearish. After trading to a 1 month high @ 1.2770 on Tuesday after the stronger than expected U.S. retail sales data, USDCAD dropped below key support at 1.2650 on Wednesday after the release of the U.S. Fed meeting minutes. The pairing dropped again Friday reaching 1.2557 – the lowest since Aug. 2^nd and looks poised to continue lower – the key target being the 1.2415/20 triple bottom from late July. The markets will now focus on any economic commentary to come out of the Jackson Hole Symposium this Thursday and Friday.

Topside targets to consider: 1.2600, 1.2650, 1.2700, 1.2770