VBCE Weekly Foreign Exchange Wrap Up for Sep. 11 – Sept. 15, 2017

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

The CAD was mixed this week with gains vs. the EUR, JPY, and AUD, and losses vs. the USD and GBP. There was no significant news out for Canada this week, while U.S. data continues to miss estimates putting little pressure on the U.S. Fed to raise interest rates (Dec rate hike probabilities are now just 55%). The Bank of England held rates steady at 0.25% but indicated that stimulus would need to be removed shortly. Economic data was fairly solid out of the UK as well this week prompting the GBP to rally nearly 6.5 cents vs the CAD and 4 cents vs the USD – reaching 2 month and 14 month highs respectively. USDCAD opened the week near 1.2155 but the downside was limited to just 1.2080, failing to eclipse last Friday's 28 month low of 1.2060. USDCAD topside rallies were limited to 1.2220, 1.2239, and 1.2220 over Wednesday, Thursday, and Friday and it is notable that trading failed to sustain above the 1.2200 level with USDCAD easing back down towards the 1.2160/70 levels on most days. Oil effectively erased last week's 5.5% decline with a 6.5% rally this week towards 4 month highs on the back of upgraded oil demand forecasts from the EIA and OPEC. However, the CAD showed little correlation to oil prices this week.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2155

1.2080

1.2239

1.2189

EURCAD

1.4630

1.4439

1.4635

1.4555

GBPCAD

1.6044

1.5936

1.6577

1.6562

JPYCAD

0.01127

0.01091

0.01127

0.01100

AUDCAD

0.9795

0.9694

0.9805

0.9751

Themes for the week:

*GBP outperforms on hawkish Bank of England – GBPUSD rate jumps from 1.3196 up to 1.3615 – a 14 month high (highest since the Brexit vote), GBPCAD climbs from 1.5936 to 1.6577 – 2 month highs

*JPY is the worst performing currency on positive risk sentiment – JPYCAD reaches a 21 month low

*USDCAD steady near 27 month lows, EURCAD near 4 month low, GBPCAD surges from 9 month lows to 2 month highs, JPYCAD falls to 21 month lows, AUDCAD falls to 9 month lows

*North Korean fears ease / major U.S. equity indices DJIA, S&P 500, NASDAQ all hit record highs

*WTI crude oil gains 6.5% from $47 up to $50 – near 4 month highs as EIA and OPEC upgrade 2017 oil demand

*U.S. producer price index m: 0.2%(exp 0.3%/prev -0.1%) y:2.4%(exp 2.5%/prev 1.9%)

*U.S. PPI core m/m: 0.1% (exp 0.2% / prev -0.1%) y: 2.0% (exp 2.1% / prev 1.8%)

*U.S. CPI m/m: 0.4% (exp 0.3% / prev 0.1%) y/y: 1.9% (exp 1.8% / prev 1.7%)

*U.S. CPI core m/m: 0.2% (exp 0.2% / prev 0.1%) y/y: 1.7% (exp 1.6% / prev 1.7%)

*Bank of England (BOE) interest rate: 0.25% (exp 0.25% / prev 0.25%)

*U.S. retail sales: -0.2% (exp 0.1% / prev 0.3%) core: 0.2% (exp 0.5% / prev 0.4%)

*U.S. industrial production: -0.9% (exp 0.1% / prev 0.4%)

*U.S. 10 year yields recover from 2.03% (10 month lows) to 2.20% (1 month high)

*U.S. Fed interest rate hike %: Sept meeting = 98.6% no change, November meeting = 94.7% no change, December meeting = 55.6% of a 25bp rate hike (to 1.50%)

On Tap for Next week:


Wed Sept 20: U.S. Fed interest rate: (exp 1.25% / prev 1.25%)

Fri Sept 22: Canada retail sales: (exp 0.1% / prev 0.1%) core: (exp 0.4% / prev 0.7%)

Canada CPI m/m: (exp 0.2% / prev 0.0%) y/y: (exp 1.5% / prev 1.2%)

Technically, USDCAD is bearish / neutral. The pairing continues to remain below key technical resistance levels – namely the 1.2420 and the 1.2337 levels which were broken earlier this month. USDCAD corrected up above the 1.2200 level on 3 consecutive days this week however, the pairing was unable to clear the 1.2239 level (post Bank of Canada rate hike resistance noted at 1.2250) or sustain trade above the 1.2200 level into the close on any given day. There were a series of lower "highs" and lower "lows" to end the week opening the door for renewed USD weakness next week. In addition, inflation data and retail sales data results this week were likely not strong enough to warrant an interest rate hike at next week's Fed meeting. Coincidentally, U.S. GDP 3rd quarter estimates were revised lower this week. Goldman Sachs from 2.0% down to 1.6%, Atlanta Fed from 3.0% down to 2.2%, and NY Fed from 2.1% down to 1.3%.

Topside targets to consider: 1.2200, 1.2250, 1.2360, 1.2425

Downside targets to consider: 1.2120, 1.2060, 1.1940, 1.1800

USDCAD 2017 Forecast (Canadian Banks) Aug / Sept.

Bank

2017 Q3

2017 Q4

2018 Q1

HSBC

1.20

1.20

N/A

TDCanada Trust*Aug

1.25

1.28

1.27

National Bank

1.20

1.22

1.24

RBC

1.21

1.24

1.27

CIBC*Aug

1.24

1.30

1.33

BMO

1.2250

1.24

1.2420

Scotia Bank

1.20

1.20

1.18

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

083e3d7a6b

Follow us




Follow us on Twitter @vbcefx


Disclaimer


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.