The Canadian dollar remains basically unchanged, analysts are waiting for the U.S. Federal Reserve on Wednesday to hike interest rates. The question is whether the Fed will announce chances of one extra hike in 2018? The U.S. economy is doing well enough to withstand the expected rate hikes, economists believe that the Fed will add one more just for good measure.
Canada’s economy is still not at full capacity or even close, so the Bank of Canada will leaving rates alone for some time yet, therefore the CAD should be trading a large discount to the USD.
USDCAD 1.3052, 1.2955, 1.2948 1.3100, 1.3122, 1.3155
XE Market Analysis: North America – Mar 19, 2018
USD-CAD posted a nine-month peak of 1.3122, capping a run higher of six consecutive sessions. The Canadian dollar has been underperforming amid worries about the NAFTA negotiation and after BoC Governor Poloz said last week that the unwinding of monetary stimulus would “remain cautious.” Oil prices have also been trading on the flat-to-softer side, overall. Incoming Canadian data have consistent with the BoC’s slow-go approach to policy normalization. Canada’s week ahead brings the final inputs to the January GDP projection, with January wholesale trade (Tuesday), seen up 0.1%, January retail sales (Friday), seen rebounding 1.0% in January after the 0.8% drop in December. February CPI data is also up (Friday), expected to grow 0.3% m/m and by 1.8% y/y. USD-CAD technically remains solidly in an uptrend, which has been in play since late January. Trend support comes in at 1.3028-30.
EUR-USD wound back intraday losses that were seen in pre-Europe trading in Asia rising to the 1.2280-90 area. EUR-JPY, EUR-CHF and other euro crosses are also up, with the notable exception of EUR-GBP, which has descended further into three-month low terrain on pound outperformance (bid on the expectation of positive news on a Brexit transition agreement will come from the meeting of respective UK and EU negotiators). We advise fading EUR-USD gains on the back of yield differentials, which look likely to remain a negative for the pairing into and after this week’s expected Fed rate hike. The Bund/T-note spread has widened below -228 bp, well out from -222 bp seen mid last week and another step closer to -235 bp historic wides. In the bigger view, EUR-USD remains mired at midway levels of a range that’s been seen since late January, which marks a consolidative phase after rallying out of sub-1.1600 levels that were seen last November. A daily close below 1.2275 would suggest momentum is shifting more assuredly to the downside.