VBCE Weekly Foreign Exchange Wrap Up for Oct 6 - 13, 2017


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

The USD was the worst performing currency this week with the majority of losses coming Friday on the back of weaker than expected retail sales and inflation data. The pricing of a December interest rate hike fell marginally to 82% while the market considers if the U.S. Fed can in fact raise interest rates 3 times in 2018 as indicated by their latest "dot plot" forecast. USDCAD opened the week near 1.2527 and basically traded sideways with numerous forays both above and below the 1.2500 level. After testing the 1.2530 level on Wednesday, USDCAD dropped to 1.2432 in early Thursday trade. Higher than expected U.S. producer price inflation saw the USD broadly rally taking USDCAD back up towards 1.2490. On Friday, U.S. CPI inflation and retail sales missed the mark broad-based USD weakness resulted in USDCAD dropping from 1.2510 down to 1.2450 before climbing to briefly test the 1.2520 level. The pairing subsequently eased lower to close the week near 1.2465.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2527

1.2432

1.2558

1.2462

EURCAD

1.4700

1.4684

1.4825

1.4730

GBPCAD

1.6368

1.6368

1.6652

1.6554

JPYCAD

0.01112

0.01107

0.01118

0.01114

AUDCAD

0.9742

0.9702

0.9871

0.9830

Themes for the week:

*The USD was the worst performing currency while the GBP and AUD outperformed

*USDCAD confined to 1.24 – 1.26 range for 3rd straight week, EURCAD near 6 week highs, GBPCAD near 2 week highs, AUDCAD near 4 week highs while JPYCAD near 5 week highs

*WTI crude oil gains 4.5% from $49.57 up to $51.72 on increased China imports and Iraq / Kurdistan conflict

*U.S. producer price index m: 0.4% (exp 0.4%/prev 0.2%) y: 2.6% (exp 2.5%/prev 2.4%)

*U.S. core PPI m/m: 0.4% (exp 0.2% / prev 0.1%)

*U.S. retail sales: 1.6% (exp 1.7% / prev -0.1%) Core: 1.0% (exp 0.3% / prev 0.5%)

*U.S. consumer price index m: 0.5%(exp 0.6%/prev 0.4%) y: 2.2%(exp 2.3%/prev 1.9%)

*U.S. core CPI m/m: 0.1% (exp 0.2% / exp 0.2%) y/y: 1.7% (exp 1.8% / prev 1.7%)

*Fed December meeting – rate hike probability edges down to 82% from 87% week prior

On Tap for Next week:


Tue Oct 17: UK CPI y/y: exp 3.0% / prev 2.9%

Eurozone CPI y/y: exp 1.5% / prev 1.5%

U.S. industrial production: 0.3% / prev -0.9%

Wed Oct 18: Canada manufacturing sales: exp -0.3% / prev -2.6%

Thurs Oct 19: Australia employment change: exp 15,000 / prev 54,200

China GDP Q3: exp 6.8% / prev 6.9%

Fri Oct. 20: Canada CPI (Sept) m/m: exp 0.3% / prev 0.1% y/y: exp 1.6% / prev 1.4%

Canada retail sales: exp 0.5% / prev 0.4% core: exp 0.3% / prev 0.2%

Technically, USDCAD is neutral. Although the pairing has been unable to break below a key pivot point at 1.2420, there have been clear signs of exhaustion / repeated failures above the 1.2520 level. USDCAD did manage to close the week a half cent better than where it started and there were a series of lower "highs" over the course of the week as well indicating a change in trend could be near. For a change in trend, USDCAD will need to see either a sustained breakout beyond the 1.2550 level or a sustained break back below the 1.2420 level. Canadian inflation data and retail sales are both expected to climb although the data is not out until Friday.

Topside targets to consider: 1.2520, 1.2550, 1.2580, 1.2600

Downside targets to consider: 1.2450, 1.2435, 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

2017 CAD Summary

2017Summary

2017Open

Low

High

2017 Last

USDCAD

1.3450

1.2060

1.3787

1.2462

EURCAD

1.4158

1.3788

1.5256

1.4730

GBPCAD

1.6590

1.5736

1.7849

1.6554

JPYCAD

0.01150

0.01091

0.01240

0.01114

AUDCAD

0.9708

0.9645

1.0343

0.9830

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.