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.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2675

1.2557

1.2770

1.2577

EURCAD

1.4987

1.4750

1.5012

1.4787

GBPCAD

1.6489

1.6135

1.6517

1.6193

JPYCAD

0.01161

0.01145

0.01162

0.01152

AUDCAD

1.0008

0.9949

1.0034

0.9974

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. 2nd 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

Downside targets to consider: 1.2550, 1.2500, 1.2420, 1.2370

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

1.28

1.31

CIBC

1.28

1.30

1.33

BMO

1.2667

1.29

1.2960

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.