VBCE Weekly Foreign Exchange Wrap Up and Forecast for Apr. 30 – May. 4, 2018

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

The USD was the top performer for the 3nd straight week while the CAD was a close 2nd along with the JPY. The CAD made broad gains after GDP grew by 0.4% in February after having contracted in January. Oil prices rallied 4.5% on the week coming close to the key psychological $70 level – a new 3.5 year high. Trade data showed a narrowing of the deficit in the U.S. while Canada's deficit surprisingly widened to $4 billion – the highest since 2012. The U.S. Fed kept its key rate on hold in Wednesday's announcement setting the stage for a likely rate hike in June. In response, USDCAD initially dropped from 1.2865 down to 1.2810 before rebounding to 1.2885. U.S. jobs data missed the mark for the 2nd straight month although USD losses during Friday's session were rather mute. USDCAD essentially maintained a 1.2830 – 1.2880 range this week with a few moves towards 1.2800 on the downside and a few moves towards 1.2900 on the upside. The EUR and the GBP were again the worst performing currencies for the 2nd straight week as economic data remains soft and points towards decelerating economic growth and inflation pressures.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2825

1.2800

1.2917

1.2845

EURCAD

1.5555

1.5337

1.5590

1.5361

GBPCAD

1.7664

1.7379

1.7710

1.7382

JPYCAD

0.01176

0.01166

0.01184

0.01177

AUDCAD

0.9722

0.9610

0.9732

0.9683

Themes for the week:

*USD and CAD outperform – USDCAD locked in sideways range 1.2800 – 1.2917

*EUR, GBP, and JPY near 3 month lows, AUD near 2 year lows

*WTI crude oil gains 4.5% to trade at new 3.5 year high (range $67.01 to $69.97)

*Germany retail sales m/m: -0.6%(exp 0.8%/prev -0.7%)y/y: 1.3% (exp 1.0%/prev 1.3%)

*Germany harmonized index of consumer prices y/y: 1.4% (exp 1.5% / prev 1.5%)

*Australia interest rate: 1.5% (exp 1.5% / prev 1.5%)

*Canada GDP (Feb): 0.4% (exp 0.3% / prev -0.1%)

*U.S. ISM manufacturing index: 57.3 (exp 58.3 / prev 59.3)

*Eurozone GDP Q1 y/y: 2.5% (exp 2.5% / prev 2.7%)

*Eurozone unemployment rate: 8.5% (exp 8.5% / prev 8.5%)

*U.S. ADP employment change: 204,000 (exp 200,000 / prev 241,000)

*U.S. Fed interest rate decision: 1.75% (exp 1.75% / prev 1.75%)

*Eurozone core CPI y/y: 0.7% (exp 0.9% / prev 1.0%)

*U.S. trade balance: -$49.0 billion (exp -$50.0 billion / prev -$57.7 billion)

*Canada Int'l merchandise trade: -$4.14 billion (exp -$2.24 billion / prev -$2.93 billion)

*U.S. non-farm payrolls: 164,000 (exp 192,000 / prev 135,000)

*U.S. unemployment rate: 3.9% (exp 4.0% / prev 4.1%)

*U.S. average hourly earnings y/y: 2.6% (exp 2.7% / prev 2.6%)

*U.S. 10 year yield ease lower from 7 year highs: 2.92% - 2.99%

On Tap for Next week:


Tue May 8: China trade balance: exp $24.804 billion / prev -$4.98 billion

Germany trade balance: exp EUR20.0 billion / prev EUR19.2 billion

Wed May 9: U.S. producer price index ex food & energy y/y: exp 2.4% / prev 2.7%

Thurs May 10: China CPI y/y: exp 2.4% / prev 2.1%

Bank of England interest rate: exp 0.75% / prev 0.5%

U.S. CPI ex food & energy m/m: exp 0.2% / prev 0.2% y/y: 1.9% / prev 2.1%

Fri May 11: Canada net employment change: exp 36,100 / prev 32,300

Canada unemployment rate: exp 5.8% / prev 5.8%

Technically, USDCAD is neutral. The pairing has failed to sustain trade above the key 1.2900 level on 5 occasions over the past 8 days. On the other hand, USDCAD has also failed to sustain trade below 1.2820 on 5 separate occasions this week. A sustained break above 1.2900 would open the door for a possible re-test of the March highs (1.30 – 1.31). On the flip side, a sustained break below 1.2820 should pressure the lower bound targets between 1.2630 and 1.2680.

Topside targets to consider: 1.2900, 1.2940, 1.2985, 1.3010

Downside targets to consider: 1.2800, 1.2770, 1.2680, 1.2630

USDCAD 2018 Forecast

Bank

2018 Q2

2018 Q3

2018 Q4

2019 Q1

TDCanada Trust

1.30

1.28

1.27

1.26

National Bank

1.27

1.23

1.21

1.20

RBC

1.30

1.28

1.28

1.26

CIBC

1.30

1.32

1.31

1.28

BMO

1.2836

1.269

1.255

1.245

Scotia Bank

1.27

1.26

1.25

1.25

2018 CAD Summary

2018Summary

2018Open

Low

High

2018 Last

USDCAD

1.2580

1.2253

1.3099

1.2845

EURCAD

1.5100

1.4820

1.6140

1.5361

GBPCAD

1.6975

1.6761

1.8292

1.7382

JPYCAD

0.01116

0.01091

0.01239

0.01177

AUDCAD

0.9811

0.9610

1.0243

0.9683

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.