VBCE Weekly Foreign Exchange Wrap Up and Forecast for June 4 -8. 18, 2018

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

The CAD was extremely volatile for the 2nd straight week. Trade concerns and weak oil prices (near 2 month lows) saw USDCAD initially climb from 1.2950 up to 1.3069 – breaking above the previous week's high of 1.3042 and within striking distance of 1.3125 – the 2018 high. The trend changed abruptly Wednesday as U.S. Treasury Secretary Mnuchin reportedly urged President Trump to exempt Canada from the steel and aluminum tariffs. Oil prices surged 3%, bouncing back from 2 month lows while Canada's trade deficit narrowed more than expected. USDCAD dropped from 1.2957 down to 1.2857 accordingly. The trend abruptly changed again with USDCAD climbing back up towards 1.2930 late Wednesday. On Friday, weaker than expected Canadian jobs data (the 2nd consecutive month of job losses) saw USDCAD move up to 1.3042. However the data was overshadowed by very strong wage growth in Canada and optimism over the upcoming G7 Summit. The move above 1.30 was quickly erased with USDCAD closing the week at session lows – 1.2920/25. The EURO was the best performing currency last week on speculation that the European Central Bank (ECB) would signal the end of its quantitative easing program at its upcoming meeting. EURUSD rebounded from 11 month lows while EURCAD climbed from 5 month lows to trade near 1 month highs. The USD and the JPY were the worst performing currencies.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2950

1.2857

1.3069

1.2921

EURCAD

1.5105

1.5098

1.5362

1.5204

GBPCAD

1.7285

1.7200

1.7480

1.7318

JPYCAD

0.01182

0.01169

0.01191

0.01179

AUDCAD

0.9802

0.9791

0.9934

0.9813

Themes for the week:

*USDCAD volatile within a 1.2857 – 1.3069 range

*EUR and GBP rebound from 5 month lows, AUD and JPY hold near 2 month highs

*WTI crude oil declines to 2 month lows (range $64.23 to $66.24)

*Australia retail sales: 0.4% (exp 0.2% / prev 0%)

*Australia interest rate: 1.50% (exp 1.50% / prev 1.50%)

*Eurozone retail sales m/m: 0.1% (exp 0.5%/prev 0.4%) y/y: 1.7% (exp 1.7%/prev 1.5%)

*Australia GDP (qoq) Q1: 1.0% (exp 0.9% / prev 0.5%)

*Canada int'l merchandise trade: -$1.9 billion (exp -$3.4b / prev -$3.93b)

*U.S. trade balance: -$46.2 billion (exp -$49 billion / prev -$47.2 billion)

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

*China trade balance: $24.92 billion (exp $31.90 billion / prev $28.38 billion)

*Germany trade balance: €19.4 billion (exp €21.0 billion / prev €21.6 billion)

*Canada net employment change: -7,500 (exp 17,500 / prev -1,100)

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

*Canada hourly earnings y/y: 3.9% (exp 3.2% / prev 3.3%)

*U.S. 10 year Treasuries flat: climbs from 2.90% up to 2.99% before falling to 2.94%

On Tap for Next week:


Mon June 11: UK industrial production m/m: exp 0.2% / prev 0.1%

UK manufacturing production m/m: exp 0.3% / prev -0.1%

Tues June 12: Trump / Kim meeting

UK average earnings excl. bonus: exp 2.9% / prev 2.9%

U.S. CPI m/m: exp 0.2% / prev 0.2% y/y: exp 2.8% / prev 2.5%

U.S. CPI ex food & energy m/m: exp 0.2% / prev 0.1% y/y: exp 2.2% / prev 2.1%

Wed June 13: China GDP Q1(qoq): exp % / prev 1.4%

UK CPI m/m: exp 0.4% / prev 0.4% y/y: exp 2.5% / prev 2.4%

U.S. producer price index m/m: exp 0.2% / prev 0.1% y/y: exp 2.7% / prev 2.6%

U.S. PPI ex food & energy m/m: exp 0.2%/ prev 0.2% y/y: exp 2.7% / prev 2.3%

U.S. Fed interest rate decision: exp 2.00% / prev 1.75%

U.S. FOMC economic projections / press conference

Thur June 14: Australia employment change: exp 18,000 / prev 22,600

Australia unemployment rate: exp 5.5% / prev 5.6%

China retail sales y/y: exp 9.5% / prev 9.4%

German harmonized CPI y/y: exp 2.2% / prev 2.2%

UK retail sales m/m: exp 0.6% / prev 1.6% y/y: exp 2.4% / prev 1.4%

ECB interest rate decision: exp 0% / prev 0%

U.S. retail sales: exp 0.4% / prev 0.3% ex autos: exp 0.4% / prev 0.3%

Fri June 8: Bank of Japan interest rate: exp -0.1% / prev -0.1%

Eurozone CPI m/m: exp 0.5% / prev 0.3% y/y: exp 1.9% / prev 1.9%

U.S. industrial production: exp 0.3% / prev 0.7%

Canada manufacturing shipments: exp 0.2% / prev 1.4%

Technically, USDCAD is neutral. There were again large moves in the pairing this week. After breaking above the prior high of 1.3042 and extending gains to 1.3069, USDCAD plunged to 1.2857. Unable to sustain CAD gains below 1.29, the pairing re-tested the 1.3042 level Friday morning. The move above 1.30 was again very brief and USDCAD eased lower towards 1.2920 – the 2nd consecutive lower weekly close.

Topside targets to consider: 1.3000, 1.3042, 1.3066, 1.3125

Downside targets to consider: 1.2920, 1.2900, 1.2855, 1.2825

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

1.2987

EURCAD

1.5100

1.4820

1.6140

1.5320

GBPCAD

1.6975

1.6761

1.8292

1.7370

JPYCAD

0.01116

0.01091

0.01239

0.01180

AUDCAD

0.9811

0.9549

1.0243

0.9885

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

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