VBCE Weekly Foreign Exchange Wrap Up for Oct. 16 - 20, 2017

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

Although, USDCAD opened the week near the 1.2460 level and look poised to move lower after closing near session lows last Friday, the pairing initially trended higher testing the 1.2590 level on Tuesday – just shy of the Oct. 6th high of 1.2600. The pairing then turned lower to test the 1.2450 level on Wednesday and Thursday before climbing to 1.2630 on Friday – the highest since Aug. 31. Canadian inflation (CPI) data out Friday suggests that inflation is rising albeit at a slower pace than expected while retail sales for August surprisingly declined by 0.3% - the market was expecting an increase of 0.5% over the July data.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2462

1.2450

1.2630

1.2623

EURCAD

1.4732

1.4690

1.4876

1.4870

GBPCAD

1.6556

1.6381

1.6675

1.6644

JPYCAD

0.01114

0.01101

0.01122

0.01112

AUDCAD

0.9836

0.9770

0.9873

0.9858

Themes for the week:

*The EUR, USD, and GBP outperformed while the AUD, CAD, and JPY lagged

*USDCAD near 7 week highs, EURCAD near 7 week highs, GBPCAD near 3 week highs, AUDCAD near 4 week highs while JPYCAD holds near 2 year lows

*WTI crude oil flat in a $50.88 - $52.30 range – holds near 5 month highs

*UK CPI y/y: 3.0% (exp 3.0% / prev 2.9%)

*Eurozone CPI y/y: 1.5% (exp 1.5% / prev 1.5%)

*U.S. industrial production: 0.3% (exp 0.3% / prev -0.7%)

*Canada manufacturing sales: 1.6% (exp -0.1% / prev -2.6%)

*Australia employment change: 19,800 (exp 15,000 / prev 53,000)

*China GDP (Q3): 6.8% (exp 6.8% / prev 6.9%)

*UK retail sales m/m: -0.8% (exp -0.1% / prev 0.9%) y/y: 1.2% (exp 2.1% / prev 2.3%)

*Canada retail sales: -0.3% (exp 0.5% / prev 0.4%) Core: -0.7% (exp 0.3% / prev 0.2%)

*Canada CPI m/m: 0.2% (exp 0.3% / prev 0.1%) y/y: 1.6% (exp 1.6% / prev 1.4%)

*core CPI common: 1.5% (prev 1.5%) trim: 1.5% (prev 1.4%) median 1.8% (prev 1.7%)

*Fed December meeting – rate hike probability edges higher to 91.3% from 87.8% week prior

On Tap for Next week:

Wed Oct 25th: Bank of Canada interest rate decision: exp unchanged at 1.0%

Australia CPI (Q3): exp 0.4% / prev 0.2%

UK GDP (Q3 y/y): exp 1.4% / prev 1.5%

Thurs Oct 26: ECB interest rate decision: exp unchanged @ 0%

Fri Oct. 27: U.S. GDP (Q3): exp 2.6% / prev 3.1%

Technically, USDCAD is bullish. After several failures to break beyond its recent 1.2450 – 1.2550 range over the past few weeks, USDCAD saw sustained trade above the 1.2600 level on Friday. The pairing also closed the week above the 1.26 level opening the door for further top-side tests dating back to the late August highs between 1.2660 and 1.2780. The market is no longer pricing in an interest rate hike at Wednesday's 7:00am Bank of Canada interest rate policy announcement (Oct. 25th) but the statement will be scrutinized for any possible indication of a December rate hike. Market pricing is currently around 50% for a hike in December. The other key item is preliminary data for U.S. 3rd quarter GDP. After a 3.1% reading for Q2, the market is expecting Q3 to be a bit softer at 2.6%.

Topside targets to consider: 1.2660, 1.2700, 1.2780, 1.2860

Downside targets to consider: 1.2590, 1.2550, 1.2480, 1.2450

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

1.27

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.