VBCE Weekly Foreign Exchange Wrap Up and Forecast for Nov. 26 – Nov. 30, 2018

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

The CAD was near the back of the pack this week with the AUD and USD leading the way. On Monday the USDCAD rate initially dropped from 1.3230 down to 1.3186 on positive market sentiment and a 3% jump in oil prices. However the move below 1.32 was short-lived and USDCAD climbed higher through Wednesday morning. A break above the previous week high of 1.3320 triggered a quick move to 1.3360 – just shy of the 2018 June high of 1.3386. The trend abruptly changed Wednesday morning with dovish comments from the U.S. Fed Chairman Powell sending the USD down about 1% across the board. U.S. yields fell towards 3 month lows as Chairman Powell said that U.S. interest rates were "just below" neutral. Back in October, Powell had mentioned that the U.S. rates were "a long way" from neutral. USDCAD dropped to 1.3242 accordingly. USDCAD tested the 1.3312 level on Thursday before falling back to 1.3256. Despite Canadian GDP meeting expectations on Friday, a 4% drop in oil prices to 13 month lows saw USDCAD briefly test 1.3333. The USMCA trade agreement was officially signed and the pairing moved back to close the week near 1.3280.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3228

1.3187

1.3360

1.3287

EURCAD

1.5000

1.4975

1.5150

1.5040

GBPCAD

1.6970

1.6868

1.7065

1.6945

JPYCAD

0.01171

0.01163

0.01174

0.01170

AUDCAD

0.9572

0.9557

0.9750

0.9700

Key Events for the week:

*USDCAD climbs just shy of 2018 high (June = 1.3386)

*USD index holds 96.62 – 97.54 range

*EUR climbs towards 2 month highs

*GBP falls towards 2 week lows

*JPY holds near 3 month highs

*AUD climbs to 3 month high

*WTI oil flat on the week / holds near 13 month lows (range $49.38 - $52.53)

*U.S. GDP Q3 annualized: 3.5% (exp 3.5% / prev 3.5%)

*U.S. core personal consumption expenditure: 1.5% (exp 1.6% / prev 1.6%)

*U.S. Fed's Powell speech **dovish tilt – interest rates are "just below" neutral**

*Germany unemployment rate: 5.0% (exp 5.1% / prev 5.1%)

*Germany CPI y/y: 2.3% (exp 2.4% / prev 2.5%)

*U.S. core personal consumption exp. price index y/y: 1.8% (exp 1.9% / prev 1.9%)

*Japan Tokyo CPI ex fresh food y/y: 1% (exp 1% / prev 1%)

*Japan unemployment rate: 2.4% (exp 2.3% / prev 2.3%)

*Germany retail sales m/m: -0.3% (exp 0.3% / prev -0.3%)

*Eurozone unemployment rate: 8.1% (exp 8.0% / prev 8.1%)

*Eurozone CPI core y/y: 1.0% (exp 1.1% / prev 1.1%)

*Canada GDP Q3 annualized: 2.0% (exp 2.0% / prev 2.9%)

*U.S. 10 year Treasury yields fall from 3.08% down to 3.00% - near 3 month lows

On Tap for Next week:

Tue Dec 4: Australia interest rate: exp 1.50% / prev 1.50%

Wed Dec 5: Australia GDP Q3 annualized: exp 3.3% / prev 3.4%

Bank of Canada interest rate decision: exp 1.75% / prev 1.75%

Thur Dec 6: Canada int'l merchandise trade: prev -$0.42 billion

Canada Ivey purchasing managers index: prev 64.6

U.S. trade balance: exp -$54.0 billion / prev -$54.0 billion

U.S. ADP employment change: exp 195,000 / prev 227,000

Fri Dec 7: Eurozone GDP Q3 y/y: prev 1.7%

Canada net employment change: exp 10,000 / prev 11,200

Canada unemployment rate: prev 5.8%

U.S. non-farm payrolls: exp 205,000 / prev 250,000

U.S. unemployment rate: exp 3.7% / prev 3.7%

U.S. avg. hourly earnings m/m: exp 0.3% / prev 0.2% y/y: exp 3.1% / prev 3.1%

Technically, USDCAD is neutral / bearish. The pairing tested 1.3360 on Wednesday – very close to the 2018 high of 1.3386 posted back in June. However, the rate dropped dramatically after dovish comments from U.S. Fed Chairman Powell on Wednesday. Subsequent tests of the 1.3300 level failed on Thursday and Friday with USDCAD finishing the week near 1.3280. The market will look toward any progress on trade between the U.S. and China in talks over the weekend. The Bank of Canada will also hold its interest rate decision on Wednesday with markets currently expecting no change. Employment data for both Canada and the U.S. is due out Friday.

Topside targets to consider: 1.3300, 1.3330, 1.3360, 1.3386

Downside targets to consider: 1.3260, 1.3230, 1.3180, 1.3140

USDCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.3100

1.3133

1.3030

1.2930

CIBC

1.3100

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

1.2900

1.2756

1.2755

1.2738

GBPUSD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.2800

1.2400

1.2800

1.3300

CIBC

1.3200

1.3600

1.4000

1.4200

National Bank

1.3000

1.3100

1.3200

1.3000

RBC

1.2600

1.2400

1.2200

1.2400

Scotiabank

1.3200

1.3200

1.3500

1.3700

TDCanada Trust

1.3200

1.3200

1.3300

1.3400

Average

1.3000

1.2983

1.3167

1.3333

GBPCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.6768

1.6285

1.6678

1.7197

CIBC

1.7292

1.7544

1.8340

1.8744

National Bank

1.6510

1.6375

1.6500

1.6510

RBC

1.6254

1.5872

1.5494

1.5872

Scotiabank

1.6896

1.6500

1.6875

1.6714

TDCanada Trust

1.6896

1.6764

1.6891

1.6884

Average

1.6769

1.6557

1.6796

1.6987

EURUSD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.1433

1.1267

1.1100

1.1500

CIBC

1.1400

1.1700

1.1900

1.2100

National Bank

1.1600

1.1900

1.2100

1.2200

RBC

1.1200

1.1000

1.1000

1.1300

Scotiabank

1.2000

1.2200

1.2400

1.2600

TD Canada Trust

1.1700

1.1800

1.1900

1.2000

Average

1.1556

1.1645

1.1733

1.1950

EURCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.4977

1.4797

1.4463

1.4870

CIBC

1.4934

1.5093

1.5589

1.5972

National Bank

1.4732

1.4875

1.5125

1.5494

RBC

1.4448

1.4080

1.3970

1.4464

Scotiabank

1.5360

1.5250

1.5500

1.5372

TD Canada Trust

1.4976

1.4986

1.5113

1.5120

Average

1.4905

1.4847

1.4960

1.5215

2018 Summary

Low

High

2018 Last

USDCAD

1.2253

1.3387

1.3257

EURCAD

1.4760

1.6140

1.5036

GBPCAD

1.6596

1.8292

1.6853

JPYCAD

0.01091

0.01239

0.01175

AUDCAD

0.9105

1.0243

0.9728

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

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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.