The USD finished the week better as oil prices fell, oil futures fell as much as 2%, along with US equities. The Canadian dollar is lower on this news, plus the better American employment numbers gives the US further reason for a rate hike. Traders are worrying about US shale production now that oil is over $65 USD a barrel, data released today, shows that US oil production exceeded 10 million barrels a day in November, a record high.
USDCAD 1.2378, 1.2370, 1.2362 1.2418, 1.2430, 1.2445
USD-CAD lifted out of yesterday’s four-month low at 1.2248, recouping to the lower 1.23s. The upgraded forecasts from the Fed has given the pairing a yield-differential underpinning, which we think should sustain for now. NAFTA uncertainty also remains in the mix, although with trade negotiations potentially playing out through 2018, the trade pact will likely fade to the backdrop until the next round kicks off in Mexico on February 26. USD-CAD has support at 1.2310-11.
EUR-USD ebbed by about 40 pips from intraday highs, taking the pair back around 1.2480. The move has been driven by a bid in the dollar as markets trim positions into the U.S. jobs report and other data releases, which we are expecting to maintain Fed tightening expectations. We expect non-farm payrolls to rise 200k, versus the 148k in December. Hourly earnings are seen up 0.2% from up 0.3% previously. We also forecast perky outcomes in December factory orders, seen rising 1.7% from 1.3% in the month prior, and in the final reading of the January consumer confidence index, to 95.0 from 94.4. The dollar may rally on any above-forecast outcomes, though assuming the global risk-on theme continues, the greenback may in fact weaken as capital seeks out higher yielding investment opportunities. EUR-USD has resistance at 1.2523-25, and support at 1.2450.
The pound has continued to hold up overall, losing some ground to the euro but gaining on the dollar and yen, among other currencies. Weaker than expected UK manufacturing PMI data, yesterday, didn’t have much impact, and sterling started the new month on a firm footing after last month posting its biggest monthly gain against the dollar since July 2010. The outperformance was driven by an unwinding in the Brexit discount that the forex market has been demanding since the UK’s vote to leave the EU in June 2016. The EU and UK’s agreement on Brexit divorcing terms in December has been behind the dynamic, along with widespread expectations for the two to agree on a post-Brexit transitory phase.