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VBCE Weekly Foreign Exchange Wrap Up for May. 7 – May. 11, 2018

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

The CAD was the best performing currency this week. USDCAD opened the week in familiar territory @ 1.2850 (the pairing had held a 1.28 – 1.29 range for two weeks) before breaking above 1.29 on Tuesday on broad-based USD demand ahead of Trump's anticipated announcement to withdraw from the Iran Nuclear deal. In a volatile session, USDCAD surged to 1.2998 on a combination of the technical break above 1.2913 and a 4% plunge in oil prices (from $70.30 down to $67). The move quickly reversed after the official withdrawal announcement with oil regaining the $70 level and USDCAD falling to 1.2948. Oil prices continued to push higher Wed and Thurs nearing $72 – the highest level since 2014 while U.S. inflation data (both PPI and CPI) was weaker than expected. Within 48 hours, USDCAD declined from 7 week highs near 1.3000 towards a 3 week low @ 1.2738. USDCAD declined further to 1.2727 on Friday ahead of the Canadian April employment data. Headline numbers showed a decline of 1,100 jobs while the details within the report continue to support economic growth in Canada. The unemployment rate held near 40 year lows while 28,800 full-time jobs were added. Wage inflation grew at the fastest pace since 2012. The CAD gave up a portion of its weekly gains after the report and was the worst performing currency on Friday although its status as the top weekly performer remained intact. USDCAD climbed to hold a 1.2770 – 1.2795 range to close out the week. The GBP suffered heavy losses on Thursday across the board after the Bank of England kept it key interest rate on hold while indicating that future rate hikes would be "limited" and "gradual." The JPY had made solid gains during Tuesday's session ahead of Trump's announcement on Iran. However once uncertainty was removed, positive mark risk sentiment over the rest of the week saw the JPY broadly decline – JPYCAD losing 2.5% from Tuesday's high.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2848

1.2727

1.2998

1.2792

EURCAD

1.5368

1.5140

1.5433

1.5280

GBPCAD

1.7377

1.7222

1.7564

1.7327

JPYCAD

0.01177

0.01161

0.01192

0.01169

AUDCAD

0.9684

0.9549

0.9702

0.9641

Themes for the week:

*USDCAD climbs to 7 week highs @ 1.2998 before falling to 3 week lows @ 1.2727

*EUR and GBP fall to 4 month lows / down 6.5% from 2018 highs, JPY near 3 month lows / down 6% from 2018 highs, AUD near 2 year lows

*WTI crude oil gains 3% to trade at new 3.5 year high (range $67.01 to $71.88)

*China trade balance: $28.80 billion (exp $24.70 billion / prev -$4.98 billion)

*China exports y/y: 12.9% (exp 6.3% / prev -2.7%)

*Germany trade balance: EUR22.0 billion (exp EUR19.8 billion / prev EUR19.2 billion)

*U.S. pulls out of Iran Nuclear agreement

*U.S. producer price index ex food/energy y/y: 2.3% (exp 2.4% / prev 2.7%)

*China CPI m/m: -0.2% (exp -0.1% / prev -1.1%) y/y: 1.8% (exp 1.9% / prev 2.1%)

*Bank of England interest rate: 0.5% (exp 0.5% / prev 0.5%) rate hikes to be "limited" and "gradual"

*U.S. CPI ex food/energy m/m:0.1%(exp0.2%/prev 0.2%) y/y:2.1%(exp 2.2%/prev2.1%)

*Canada net employment change: -1,100 (exp 20,000 / prev 32,300)

*Canada unemployment rate: 5.8% (exp 5.8% / prev 5.8%)

*Canada avg hourly wages: 3.3% (exp 3.2% / prev 3.1%)

*U.S. 10 year yield re-tests 7 year highs: climbs from 2.94% up to 3.01% before falling back to 2.95%

On Tap for Next week:


Tue May 15: China retail sales y/y: exp 10.0% / prev 10.1%

Germany GDP Q1: exp 0.4% / prev 0.6%

Eurozone GDP Q1: exp 0.4% / prev 0.4%

U.S. retail sales: exp 0.4% / prev 0.6% ex autos: exp 0.5% / prev 0.2%

Wed May 16: Germany harmonized CPI: exp % / prev 1.4%

Eurozone CPI core y/y: exp 0.7% / prev 0.7%

U.S. industrial production: exp 0.5% / prev 0.5%

Thurs May 17: Australia employment change: exp 30,300 / prev 4,900

Australia unemployment rate: exp 5.5% / prev 5.5%

Japan National CPI ex food/energy: exp % / prev 0.5%

Fri May 11: Canada retail sales: exp -0.1% / prev 0.4%

Canada CPI m/m: exp 0.3% / prev 0.3% y/y: exp 2.6% / prev 2.3%

Technically, USDCAD is bearish. Although the pairing briefly broke above the 1.2900 – 1.2917 resistance area that had contained top-side pressure over the past two weeks on Tuesday, a large reversal ensued after the technical failure at 1.30. USDCAD broke below and remained below the 1.2800 – 1.2820 support area as oil prices rallied by 7% in the aftermath of the U.S. withdrawal from the Iran nuclear agreement. A sustained break back above 1.2820 would negate the bearish trend while a move below 1.2730 would add to bearish / downside momentum.

Topside targets to consider: 1.2815, 1.2850, 1.2900, 1.2940

Downside targets to consider: 1.2730, 1.2680, 1.2630, 1.2580

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

1.2700

1.262

1.253

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

1.2792

EURCAD

1.5100

1.4820

1.6140

1.5280

GBPCAD

1.6975

1.6761

1.8292

1.7327

JPYCAD

0.01116

0.01091

0.01239

0.01169

AUDCAD

0.9811

0.9549

1.0243

0.9641

Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada, U.S. Federal Reserve, CNBC, Forexlive, CMEGroup, BNN

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Disclaimer


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.