VBCE Weekly Foreign Exchange Wrap Up for Sep. 25 – Sept. 29, 2017

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

Early in the week, USDCAD climbed from 1.2311 up to 1.2414 before falling back to 1.2328. The pair was driven higher by some hawkish comments by U.S. Fed Chair Yellen on Tuesday morning however comments from Canadian Finance Minister suggesting that the Canadian economy "can continue to do well with the CAD at these levels" prompted a quick reversal down towards 1.2328 Tuesday afternoon. The pairing would then rally the very next day after Bank of Canada Governor Poloz came across as "neutral" in his comments with regards to the outlook for further interest rate hikes. USDCAD broke above the 1.2414 resistance level and made gains in early Thursday trade to 1.2519 before retracing all the way back to the 1.2414 level. Canadian GDP for July out Friday morning was flat (vs a 0.1% expected gain) and USDCAD rallied higher making marginal new monthly highs @ 1.2525/30 before falling back towards the 1.2460 level. Again for the 3rd consecutive week, the CAD displayed little correlation to oil prices which gained another 5% to $52.85 for a total monthly gain of over 13%.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2333

1.2318

1.2530

1.2470

EURCAD

1.4738

1.4494

1.4805

1.4725

GBPCAD

1.6645

1.6544

1.6796

1.6705

JPYCAD

0.01101

0.01093

0.01112

0.01108

AUDCAD

0.9823

0.9702

0.9832

0.9761

Themes for the week:

*The USD was the best performer while the AUD lagged

*USDCAD tested 4 week high, EURCAD holds near 3 week highs, GBPCAD near 11 week highs, AUDCAD near 4 week lows while JPYCAD recovers from 21 month lows and climbs towards 3 week highs

*WTI crude oil gains 5% from $50.40 up to $52.85 – near 5 month highs before settling week near $51.60.

*U.S. durable goods orders:1.7%(exp 1.0%/prev -6.8%) core:0.2%(exp 0.2%/prev 0.8%)

*U.S. GDP (Q2): 3.1% (exp 3.0% / prev 3.0%)

*Canada GDP (July): 0% (exp 0.1% / prev 0.3%) annualized: 3.8%(exp 3.9%/prev 4.4%)

*Canadian Finance Minister Morneau: the Canadian economy "can continue to do well with the CAD at these levels."

Bank of Canada Poloz: offers up neutral bias after raising rates past two consecutive BOC meetings. "Monetary policy will be particularly data dependent in these circumstances and, as always, we could still be surprised in either direction."

*U.S. Fed Yellen speaks: "Fed should be wary of moving too gradually" (hawkish)

"Uncertainties strengthen the case for gradual rate hikes."(dovish)

*Fed December meeting – rate hike probability continues to hold near 71%

On Tap for Next week:

Thur Oct 5: Canada trade balance: exp -$2.65 billion / prev -$3.04 billion

U.S. trade balance: exp -$42.70 billion / prev -$43.70 billion

Fri Oct. 6: Canada net employment change: exp 15,000 / prev 22,200

Canada unemployment rate: exp 6.3% / prev 6.2%)

U.S. non-farm payrolls: exp 93,000 / prev 156,000

U.S. unemployment rate: exp 4.4% / prev 4.4%

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

Technically, USDCAD is neutral / bullish. The pairing broke above a key resistance level @ 1.2414/20 on Wednesday after comments from Bank of Canada Governor Poloz with gains extending up to 1.2520 and 1.2530 on Thursday and Friday respectively. Trading above the 1.25 level was brief with USDCAD falling to test the 1.2414 level on Thursday and again in early Friday trade. For a change in trend, USDCAD will need to see sustained trade above 1.2500 and a breakout beyond the 1.2520/30 levels or a sustained break back below the 1.2414 level. Markets will be looking towards jobs data out Friday – U.S. non-farm payrolls may see a fairly weak headline reading for the 2nd straight month due to the late summer storms. (August payrolls were 156k and September is expected to be just 93k, - the U.S. typically averages 200k+/month). Canadian job growth is expected to continue with a gain of 15k (prev 22k).

Topside targets to consider: 1.2500, 1.2530, 1.2560, 1.2620

Downside targets to consider: 1.2414, 1.2330, 1.2250, 1.2200

USDCAD 2017 Forecast (Canadian Banks) Sept.

Bank

2017 Q3

2017 Q4

2018 Q1

HSBC

1.20

1.20

N/A

TDCanada Trust

1.2345

1.2048

1.2048

National Bank

1.20

1.22

1.24

RBC

1.21

1.24

1.27

CIBC

1.23

1.26

1.30

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

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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.