VBCE Weekly Foreign Exchange Wrap Up and Forecast for Mar. 12 – Mar. 16, 2018

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

The CAD was the worst performing currency for the 3^rd consecutive 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. The CAD closed the previous week on a strong note and looked poised for further gains early in the week. However dovish comments from Bank of Canada governor Poloz Tuesday morning caused the CAD to broadly weaken. He mentioned that the Canadian economy could handle another 500,000 jobs added without upward pressure on wages. USDCAD broke above the key 1.30 level on Thursday and continued up towards 1.3100 to close the week.

Themes for the week:

*USDCAD near 9 month highs, EURCAD near 8 year high, GBPCAD near 21 month high, JPYCAD near 9 month highs, AUDCAD tests 11 month highs

*WTI crude oil loses 3% before closing week unchanged (range from $60.54 to $62.54)

*U.S. CPI m/m: 0.2% (exp 0.2% / prev 0.3%) y/y: 2.2% (exp 2.2% / prev 2.1%)

*Bank of Canada Poloz speech: "economy carrying untapped potential that could prolong the expansion without causing inflation pressures."

*U.S. retail sales: -0.1% (exp 0.3% / prev -0.1%)

*Eurozone CPI m/m: 0.2% (exp 0.2% / prev -0.9%) y/y: 1.1% (exp 1.2% / prev 1.2%)

*Canada manufacturing shipments: -1.0% (exp -0.8% / prev -0.1%)

*U.S. industrial production: 1.1% (exp 0.3% / prev -0.3%)

*U.S. 10 year yields decline from 4 year highs (2.80% - 2.88% range)

On Tap for Next week:

Mon Mar 19: UK Brexit press conference

Tue Mar 20: RBA (Australia central bank) meeting minutes

UK CPI y/y: exp 2.8% / prev 3.0%

Wed Mar 21: US Fed economic projections/interest rate decision: exp 1.75%/prev 1.50%

Thurs Mar 22: Australia employment change: exp 20,000 / prev 16,000

Bank of England interest rate decision: exp 0.5% / prev 0.5%

Fri Mar 23: Canada retail sales: exp 0.2% / prev -0.8%

Canada CPI m/m: exp 0.3% / prev 0.7% y/y: 1.6% / prev 1.7%

Technically, USDCAD is bullish. After multiple rejections at the 1.30 level during the first week of March and the subsequent decline to 1.2802 on Monday (two week low), USDCAD broke above the 1.30 level and remained above that level Thursday and Friday. The pairing has gained steadily from the 1.2250 lows from early February and looks poised to challenge the cluster of resistance dating back to June 2017 (prior to the BOC rate hike sequence).

Topside targets to consider: 1.3100, 1.3150, 1.3200, 1.3250