VBCE Weekly Foreign Exchange Wrap Up for Dec 4 - 8, 2017

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

Broad CAD strength carried over from the strong jobs report from Friday, Dec. 1 taking USDCAD down to 1.2622, the lowest level in 5 weeks. The market was ready for a hawkish or optimistic Bank of Canada policy announcement on Wednesday morning given the strong trend in Canadian economic data. Recent data continued to surprise to the upside proving that the Canadian economy had weathered any headwinds caused by the two back to back rate hikes and a rapidly strengthening CAD over the July – Sept period. The BOC held rates at 1.00% accompanied by a neutral tone maintaining "caution" with regards to future interest rate hikes. The CAD gains were quickly reversed taking USDCAD back towards the 1.2870 level. On Friday, U.S. employment data was mixed with good headline readings but weak wage inflation. USDCAD dipped towards 1.2800 before rallying to test the 1.2870 level again, eventually closing the week at 1.2845.

Themes for the week:

*The USD & GBP lead while the CAD, AUD, and JPY lag

*USDCAD falls to 6 week lows before climbing back towards 5 month highs, GBPCAD near 6 month highs, AUDCAD tests 1.5 year low

*WTI crude oil unchanged near 2.5 year highs ($55.82 - $58.16 range)

*Australia retail sales: 0.5% (exp 0.3% / prev 0.1%)

*Australian RBA interest rate decision: 1.50% (exp 1.50% / prev 1.50%)

*Canada trade balance: -$1.47 billion (exp -$2.7 billion / prev -$3.36 billion)

*U.S. trade balance: -$48.70 billion (exp -$47.50 billion / prev -$44.90 billion)

*Australia GDP Q3 y/y: 2.8% (exp 3.0% / prev 1.8%)

*Bank of Canada interest rate decision: 1.00% (exp 1.00% / prev 1.00%)

*Japan GDP Q3 y/y: 2.5% (exp 1.5% / prev 1.4%)

*U.S. non-farm payrolls: 228,000 (exp 200,000 / prev 244,000)

*U.S. unemployment rate: 4.1% (exp 4.1% / prev 4.1%)

*U.S. average hourly earnings: 0.2% (exp 0.3% / prev -0.1%)

On Tap for Next week:

Tue Dec 12: GBP CPI y/y: exp 3.0% / prev 3.0%

Wed Dec 13: GBP unemployment rate: exp 4.2% / prev 4.3%

U.S. core CPI y/y: exp 1.8% / prev 1.8%

U.S. Fed interest rate decision: exp 1.50% / prev 1.25%

U.S. Fed statement and economic projections

Thur Dec 14: Australia net employment: exp 19,200 / prev 3,700

GBP retail sales m/m: exp 0.4% / prev 0.3%

Bank of England interest rate: exp 0.50% / prev. 0.50%

European Central Bank interest rate: exp 0% / prev 0%

U.S. core retail sales: exp 0.7% / prev 0.1%

Fri Dec 8: Canada manufacturing sales: exp. 0.8% / prev 0.5%

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

Technically, USDCAD is neutral. After breaking below the November low early in the week, USDCAD looked poised for further downside given the significant down-move from 1.2908 to 1.2620 over the Nov. 30 - Dec.5 period. A less hawkish statement from the Bank of Canada led a drastic reversal over the rest of the week taking USDCAD up towards the 1.2870/80 resistance level. A sustained break below 1.2620 or above 1.2920 will be required for a change in trend.

Topside targets to consider: 1.2880, 1.2908, 1.2916, 1.2970