VBCE Weekly Foreign Exchange Wrap Up and Forecast for Feb. 26 – Mar. 2, 2018

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

The CAD was the worst performing currency this week. After performing quite well between mid-December 2017 – early February 2018, the CAD has been the worst performing currency in 2018 and has weakened to multi-month lows vs most major currencies. After weaker than expected retail sales and employment data last month, Canadian economic performance disappointed again with December GDP data declining from November levels and Q4 data missing estimates. Q3 data was also revised lower. President Trump announced tariffs on aluminum and steel which will negatively impact Canada as well. Recently, there has been a disconnect with the positive correlation between relative CAD performance and general positive market sentiment and oil prices.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2629

1.2614

1.2916

1.2878

EURCAD

1.5525

1.5525

1.5918

1.5860

GBPCAD

1.7639

1.7632

1.7800

1.7775

JPYCAD

0.01182

0.01179

0.01223

0.01217

AUDCAD

0.9906

0.9903

1.0012

0.9988

Themes for the week:

*JPY leads / CAD lags

*USDCAD near 8 month highs, EURCAD approaches 8 year high, GBPCAD near 10 month high, JPYCAD near 8 month highs, AUDCAD tests 6 month highs

*WTI crude oil loses 4% - (range from $60.20 to $64.06)

*U.S. durable goods orders: -3.7% (exp -2.0% / prev 2.6%)

*Japan retail trade y/y: 1.6% (exp 2.1% / prev 3.6%)

*Germany employment change: -22,000 (exp -15,000 / prev -25,000)

*Germany unemployment rate: 5.4% (exp 5.4% / prev 5.4%)

*Eurozone CPI y/y: 1.2% (exp 1.2% / prev 1.3%)

*U.S. GDP Q4: 2.5% (exp 2.5% / prev 2.6%)

*U.S. ISM manufacturing PMI: 60.8 (exp 58.7 / prev 59.1)

*Germany retail sales y/y: 2.3% (exp 3.5% / prev -1.9%)

*Canada GDP (Dec): 0.1% (exp 0.1% / prev 0.4%)

*Canada GDP (Q4) annualized: 1.7% (exp 2.0% / prev 1.5%)

*U.S. 10 year yields decline from 4 year highs (2.80% - 2.93% range)

On Tap for Next week:


Tue Mar 6: Australia central bank interest rate decision: exp 1.5% / prev 1.5%

Wed Mar 7: Eurozone GDP Q4 y/y: exp 2.7% / prev 2.7%

Canada International merchandise trade: exp / prev -$3.19 billion

Bank of Canada interest rate decision: exp 1.25% / prev 1.25%

U.S. trade balance: exp -$54.1 billion / prev -$53.1 billion

Thur Mar 8: ECB interest rate decision: exp 0% / prev 0%

Bank of Canada Lane speech

Friday Mar 9: Bank of Japan interest rate decision: exp -0.1% / prev -0.1%

Canada net employment change: exp 68,500 / prev -88,000

Canada unemployment rate: exp 5.8% / prev 5.9%

U.S. non-farm payrolls: exp 190,000 / prev 200,000

U.S. unemployment rate: exp 4.1% / prev 4.1%

U.S. average hourly earnings y/y: exp 2.5% / prev 2.9%

Technically, USDCAD is bullish. The pairing has gained 16 out of the past 21 trading days and looks poised to challenge the cluster of resistance in the 1.29 – 1.2925 range from early December 2017. A break above 1.2925 targets the 1.30 level last seen in early July 2017 just prior to the Bank of Canada interest rate hike. A sustained move below 1.2625 would re-ignite the bearish trend in place from mid-December 2017 to early February 2018.

Topside targets to consider: 1.2925, 1.3000, 1.3050, 1.3100

Downside targets to consider: 1.2810, 1.2760, 1.2665, 1.2625

USDCAD 2018 Forecast

Bank

2018 Q2

2018 Q3

2018 Q4

2019 Q1

TDCanada Trust

1.29

1.28

1.28

1.27

National Bank

1.25

1.23

1.21

1.20

RBC

1.26

1.24

1.22

1.24

CIBC

1.30

1.32

1.31

1.28

BMO

1.28

1.265

1.252

1.245

Scotia Bank

1.27

1.26

1.25

1.25

2018 CAD Summary

2018Summary

2018Open

Low

High

2018 Last

USDCAD

1.2580

1.2753

1.3000

1.2970

EURCAD

1.5100

1.4820

1.6031

1.6010

GBPCAD

1.6975

1.6761

1.8006

1.7970

JPYCAD

0.01116

0.01091

0.01228

0.01221

AUDCAD

0.9811

0.9713

1.0089

1.0080

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.