VBCE Weekly Foreign Exchange Wrap Up and Forecast for Oct. 15 – Oct. 19, 2018

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

The CAD was initially the best performing currency through Tuesday's session on the back of an upbeat Bank of Canada Business Outlook survey that noted "near-term business prospects continue to be robust. Strong demand and elevated capacity pressures support firms' investment and employment intentions." Equity markets and oil prices also recovered in the early going while U.S. retail sales were weaker than expected sending the greenback lower across the board. USDCAD dropped from 1.3050 down to 1.2916 – a 2 week low accordingly. The CAD's fortunes reversed course Wednesday as hawkish U.S. Fed meeting minutes indicated that more interest rate hikes may be warranted before reaching a "neutral" level. Equity markets and oil prices declined on the news sending USDCAD up to 1.3089 on Thursday. After a correction down to 1.3028 early Friday, the rate surged to 1.3120 on the back of surprisingly weak Canadian retail sales and inflation data. A brief move to 1.3080 was followed by a move up to 1.3131 –a 6 week high before closing the week at 1.3100. The CAD ends the week down marginally against most major currencies with the bulk of the losses coming during Friday's N.A. session. The USD was the best preforming currency this week with the gains coming after the release of Wednesday's hawkish Fed meeting minutes.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3020

1.2916

1.3131

1.3100

EURCAD

1.5040

1.4931

1.5132

1.5073

GBPCAD

1.7125

1.6961

1.7186

1.7110

JPYCAD

0.01160

0.01150

0.01168

0.01163

AUDCAD

0.9263

0.9223

0.9365

0.9310

Key Events for the week:

*USDCAD climbs to 6 week high after falling to two week low

*USD index declines from 96.16 down to 94.95

*EUR and AUD near 3 week high, GBP near 1 week high, JPY near 1 month high

*WTI oil falls 3% towards 1 month low (range $68.44 - $72.66)

*Bank of Canada business outlook survey – fairly upbeat assessment https://www.bankofcanada.ca/2018/10/business-outlook-survey-autumn-2018/

*U.S. retail sales: 0.1% (exp 0.5% / prev 0.1%) ex autos: -0.1% (exp 0.3% / prev 0.2%)

*China CPI m/m:0.7%(exp 0.7%/prev 0.7%) y/y:2.5% (exp 2.5%/prev 2.3%)

*UK avg earnings incl. bonus: 2.7% (exp 2.4% / prev 2.6%)

*U.S. industrial production: 0.3% (exp 0.3% / prev 0.4%)

*Wed Oct 17: EU Brexit Summit – withdrawal agreement still not settled

*UK CPI y/y: 2.4% (exp 2.8% / prev 2.7%) Core: 1.9% (exp 1.8% / prev 2.1%)

*Eurozone CPI y/y: 2.1% (exp 2.1% / prev 2.1%) Core: 0.9% (exp 1.0% / prev 0.9%)

*U.S. FOMC minutes *more hawkish than expected

*Australia employment change: 5,600 (exp 15k / prev 44.6k)

*Australia unemployment rate: 5.0% (exp 5.3% / prev 5.3%)

*UK retail sales m/m: -0.8% (exp -0.4% / prev 0.4%) y/y: 3.0% (exp 3.6% / prev 3.4%)

*Japan national CPI ex fresh food y/y: 1.0% (exp 1.0% / prev 0.9%)

*China GDP Q3 y/y: 6.5% (exp 6.6% / prev 6.7%)

*Canada retail sales m: -0.1% exp 0.3%/prev 0.2% ex autos: -0.4% exp 0.2%/prev 0.8%

*Canada CPI m/m: -0.4% (exp 0% / prev -0.1%) y/y: 2.2% (exp 2.7% / prev 2.8%)

*U.S. 10 year Treasury yields hold under 8 year highs (3.14% to 3.21%)

On Tap for Next week:


Mon Oct 22: Canada wholesale sales: (exp 0.5% / prev 1.5%)

Wed Oct 24: Bank of Canada interest rate: (exp 1.75% / prev 1.50%)

Thur Oct 25: European Central Bank interest rate decision: (exp 0% / prev 0%)

U.S. durable goods orders: (exp -0.9% / prev 4.5%)

Japan Tokyo CPI ex fresh food y/y: (exp 0.9% / prev 1.0%)

Fri Oct 26: U.S. GDP Q3 annualized: exp 3.3% / prev 4.2%

U.S. core personal consumption expenditure Q3: (exp 2.0% / prev 2.1%)

Technically, USDCAD is neutral / bullish although the charts are a bit messy. USDCAD initially failed to break through last week's high with a move to 1.3051 on Monday. This led to a break below last week's lows with a move to 1.2916 on Tuesday. However, further gains could not be sustained and the pairing moved higher over the past three days breaking above the 1.3050 – 1.3080 resistance zone with gains extending up to 1.3131. The pairing closed the week just below the 1.3110 resistance level. The market now awaits the upcoming Bank of Canada interest rate policy announcement next Wednesday at 7:00am. Although the Bank of Canada Business Outlook Survey was quite strong, and the uncertainties surrounding NAFTA are now behind us, will the BOC look past the weaker than expected retail sales and inflation data and maintain its stance of further gradual rate hikes being warranted? USDCAD has largely remained confined to a 1.2780 – 1.3225 range over the past few months and a break out of this range is likely needed for a longer-term trend to develop.

Topside targets to consider: 1.3130, 1.3180, 1.3200, 1.3225

Downside targets to consider: 1.3080, 1.3020, 1.2920, 1.2888

USDCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.2843

1.2710

1.2650

1.2580

CIBC

1.2800

1.2900

1.3100

1.3200

National Bank

1.2700

1.2500

1.2500

1.2700

RBC

1.2900

1.2800

1.2700

1.2800

Scotiabank

1.2800

1.2500

1.2500

1.2200

TDCanada Trust

1.2800

1.2700

1.2700

1.2600

Average

1.2807

1.2685

1.26917

1.2680

GBPUSD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.2766

1.2333

1.2700

1.3300

CIBC

1.3300

1.3500

1.3900

1.4200

National Bank

1.3100

1.3300

1.3200

1.3000

RBC

1.2000

1.2300

1.2500

1.2700

Scotiabank

1.3200

1.3200

1.3500

1.3700

TDCanada Trust

1.3200

1.3200

1.3300

1.3400

Average

1.2928

1.2972

1.3183

1.3383

GBPCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.6395

1.5675

1.6066

1.6731

CIBC

1.7024

1.7415

1.8209

1.8744

National Bank

1.6637

1.6625

1.6500

1.6510

RBC

1.5480

1.5744

1.5875

1.6256

Scotiabank

1.6896

1.6500

1.6875

1.6714

TDCanada Trust

1.6896

1.6764

1.6891

1.6884

Average

1.6555

1.6454

1.6736

1.6973

EURUSD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.1766

1.1666

1.1900

1.2200

CIBC

1.1800

1.2000

1.2300

1.2500

National Bank

1.1800

1.2000

1.2100

1.2200

RBC

1.1200

1.1400

1.1600

1.1800

Scotiabank

1.2000

1.2200

1.2400

1.2600

TD Canada Trust

1.1700

1.1800

1.1900

1.2000

Average

1.1711

1.1844

1.2033

1.2217

EURCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.5111

1.4827

1.5054

1.5348

CIBC

1.5104

1.5480

1.6113

1.6500

National Bank

1.4986

1.5000

1.5125

1.5494

RBC

1.4448

1.4592

1.4732

1.5104

Scotiabank

1.5360

1.5250

1.5500

1.5372

TD Canada Trust

1.4976

1.4986

1.5113

1.5120

Average

1.4998

1.5023

1.5273

1.5490

2018 Summary

Low

High

2018 Last

USDCAD

1.2253

1.3387

1.3100

EURCAD

1.4760

1.6140

1.5073

GBPCAD

1.6596

1.8292

1.7110

JPYCAD

0.01091

0.01239

0.01163

AUDCAD

0.9105

1.0243

0.9310

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

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