VBCE Weekly Foreign Exchange Wrap Up for Oct. 2 -6, 2017

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

The USD was the top performer this week while the CAD managed gains vs. the EUR, GBP, and AUD. USDCAD was neutral for much of the week with several attempts to break above the 1.25 level stalling between the 1.2500 -1.2538 area and pulling back to near-term support in the 1.2447 – 1.2480 area. On Thursday, trade data showed that the Canadian trade deficit widened by $430 million (it was expected to narrow by $380 million) and USDCAD climbed from 1.2461 up to 1.2585 during the session. On Friday, another month of strong Canadian employment data combined with mixed results in the U.S. saw USDCAD decline from 1.2600 down to 1.2527. The GBP was the worst performing currency this week losing 3.5 cents on Brexit woes and confidence issues surrounding PM Teresa May. The AUD also lagged as the RBA kept interest rates unchanged while retail sales declined for the 2nd consecutive month. Also notable, for the 4th consecutive week, the CAD displayed little correlation to oil prices which declined 5% from $51.69 down to $49.11.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2467

1.2447

1.2600

1.2527

EURCAD

1.4730

1.4640

1.4740

1.4677

GBPCAD

1.6702

1.6348

1.6715

1.6358

JPYCAD

0.01108

0.01105

0.01116

0.01112

AUDCAD

0.9767

0.9709

0.9815

0.9720

Themes for the week:

*The USD and the JPY were the best performers while the GBP and AUD lagged

*USDCAD near 5 week high, EURCAD near 3 week highs, GBPCAD near 3 week lows, AUDCAD near 5 week lows while JPYCAD near 4 week highs

*WTI crude oil loses 5% from $51.69 down to $49.11 despite much larger than expected draw from oil inventories (-6.023m barrels / exp -0.756m / prev -1.846m)

*Australia (RBA) interest rate decision: 1.5% (exp 1.5% / prev 1.5%)

*Australia retail sales: -0.6% (exp 0.3% / prev -0.2%)

*Canada trade balance: -$3.41 billion (exp -$2.60b / prev -$2.98b)

*U.S. trade balance: -$42.4 billion (exp -$42.7b / prev -$43.6b)

*Canada net employment change: 10,000 (exp 14,500 / prev 22,200)

*Canada full time jobs: +112,000 (prev -88, 100)

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

*U.S. non-farm payrolls: -33,000 (exp 90,000 / prev 169,000)

*U.S. unemployment rate: 4.2% (exp 4.4% / prev 4.4%)

*U.S. average hourly earnings: 0.5% (exp 0.3% / exp 0.1%)

*Fed December meeting – rate hike probability edges up to 89% from just 36% 1 month earlier

On Tap for Next week:


Thur Oct 12: U.S. Producer price index m/m: 0.4% / prev 0.2% y/y: 2.5% / prev 2.4%

Core PPI m/m: 0.2% / prev 0.1% y/y: 2.0% / prev 2.0%

Fri Oct. 13: U.S. consumer price index m/m: 0.6% / prev 0.4% y/y: 2.3% / prev 1.9%

Core CPI m/m: 0.2% / prev 0.2% y/y: 1.8% / prev 1.7%

U.S. retail sales: 1.6% / prev -0.2%

Core retail sales: 0.3% / prev 0.2%

Technically, USDCAD is neutral / bullish. The pairing broke above a key resistance level @ 1.2414/20 the previous week however subsequent gains above last week's high of 1.2530 have been limited. Although U.S. data continues to improve and rate hike odds for a December rate hike have moved up considerably over the past month (from 36% up to 89%), Canadian data remains fairly upbeat as well. After testing the 1.2580 / 1.2600 area on Friday, USDCAD closed the week near session lows @ 1.2527. For a change in trend, USDCAD will need to see either a sustained breakout beyond the 1.2580 level or a sustained break back below the 1.2414 level. In the absence of any Canadian data in the upcoming shortened business week, markets will be looking towards further confirmation that inflation is rising in the U.S. and that a December interest rate hike is indeed warranted. Wage inflation for September was stronger than expected and both producer price and consumer price indices are expected to rise.

Topside targets to consider: 1.2550, 1.2580, 1.2600, 1.2620

Downside targets to consider: 1.2520, 1.2460, 1.2414, 1.2330

USDCAD 2017/2018 Forecast (as of Sept /Oct)

Bank

2017 Q4

2018 Q1

2018 Q2

HSBC

1.20

1.20

1.20

TDCanada Trust

1.2048

1.2048

1.2048

National Bank

1.23

1.26

1.27

RBC

1.24

1.27

1.26

CIBC

1.26

1.30

1.28

BMO

1.2430

1.2420

1.2290

Scotia Bank

1.20

1.18

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.