VBCE Weekly Foreign Exchange Wrap Up for Oct. 23 – Oct. 27, 2017

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

USDCAD held a 1.26 – 1.27 range heading into Wednesday's Bank of Canada announcement. The statement was more "cautious" than optimistic and the CAD broadly weakened taking USDCAD from1.2637 up to 1.2818. Better than expected U.S. Q3 GDP out Friday morning saw the pairing climb to 1.2917, the highest since July 12th – the day of the first of two BOC rate hikes this year. Surging oil prices coupled with some broader USD weakness then took USDCAD down to 1.2812. The EURO was the worst performing currency having given up all of its earlier weekly gains after the ECB reduced its monthly stimulus from EUR60 billion to EUR30 billion but followed up by extending the program for another 9 months and possibly longer.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2625

1.2611

1.2917

1.2812

EURCAD

1.4878

1.4810

1.5145

1.4810

GBPCAD

1.6646

1.6615

1.6995

1.6825

JPYCAD

0.01112

0.01107

0.01133

0.01125

AUDCAD

0.9872

0.9774

0.9882

0.9830

Themes for the week:

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

*USDCAD and GBPCAD near 4 month highs, EURCAD near 1 week lows, JPYCAD near 2 month highs, AUDCAD continue to holds within 2 month range

*WTI crude climbs 5% from $51.57 up to $54.20 range – 7 month highs

*Bank of Canada interest rate decision: unchanged @ 1.00% http://www.bankofcanada.ca/2017/10/fad-press-release-2017-10-25/

*Australia CPI(Q3): 1.8% (exp 2.0% / prev 1.9%)

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

*ECB interest rate decision: unchanged @ 0%

*U.S. GDP(Q3): 3.0% (exp 2.6% / prev 3.1%)

*Bank of Canada December rate hike probability declines to 34%, January @ 70%

*U.S. Fed December meeting – rate hike probability edges higher to 96% from 91%

On Tap for Next week:


Tue Oct 31: Canada GDP(Aug): exp 0.1% / prev 0%

Wed Nov 1: U.S. Fed interest rate decision: exp unchanged @ 1.25%

Thurs Nov 2: Bank of England interest rate decision: exp 0.50% / prev 0.25%

Fri Nov 3: Canada employment change: exp 15,000 / prev 10,000

Canada unemployment rate: exp 6.2% / prev 6.2%

Canada trade balance: exp -$3.00 billion / prev -$3.41 billion

U.S. non-farm payrolls: exp 312,000 / prev -33,000

U.S. unemployment: 4.2% / prev 4.2%

U.S. average hourly earnings: exp 0.2% / prev 0.5%

U.S. trade balance: exp -$43.20 billion / prev -$42.40 billion

Technically, USDCAD is bullish. After breaking out of its recent 1.2450 – 1.2550 range and closing above the 1.2600 level the previous week, USDCAD trended higher gaining nearly 3 cents this week. It appears to be in overbought territory as trading above the 1.29 level could not be sustained on Friday and the pairing fell back towards 1.2800 to close the week. Next week's U.S. Fed interest rate decision may be a non-event as markets are currently pricing a near 100% chance of a December rate hike. On Friday, Canadian jobs data should show solid gains while U.S. data should bounce back after a very poor September reading. The market will pay close attention to the wage inflation data which has had a tendency to move the markets more in recent months than the headline jobs data.

Topside targets to consider: 1.2860, 1.2915, 1.2930, 1.3000

Downside targets to consider: 1.2780, 1.2650, 1.2550, 1.2480

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.