The Canadian dollar, barring any world changing events, will likely remain in a narrow range until Wednesday. The Bank of Canada will make its rate announcement, which will remain the same, giving a slightly bearish outlook on the Canadian economy. Given this, then the USD-CAD likely weaken in the short term.
USDCAD 1.2688. 1.2678, 1.2673 1.2720, 1.2728, 1.2751
Market Pulse Report:
There was unexpected positive news on Friday, as Canadian employment change soared to 79.5 thousand, crushing the estimate of 10.2 thousand. This marked 12 straight months of job gains and helped drive the unemployment rate down to 5.9%. There was more good news, as the September GDP rebounded with a gain of 0.2%, edging above the estimate of 0.1%. The impressive numbers boosted the Canadian dollar by some 1.6% on Friday, its strongest 1-day gain in 2017. Will the Bank of Canada reconsider its monetary policy? A rate hike remains unlikely before April 2018, although red-hot numbers in the fourth quarter could mean that the BoC will adjust and raise rates more quickly.
XE Market analysis:
The dollar got a post-Senate tax bill passage bump higher during Asian hours on Monday, though was relatively steady through the N.Y. session. EUR-USD plied a narrow range, albeit near its overnight low, bottoming at 1.1830. USD-JPY pulled back from over two-week highs of 113.08, though found support into 112.70.USD-CAD edged a bit higher on the back of softer oil prices, topping over 1.2715, while cable pulled back 100 points to 1.3414 after it became clear there was no Brexit breakthrough during the meeting between May and Juncker.
EUR-USD had a quiet session, managing just a 1.1830 to 1.1859 trading band from the N.Y. open. The bulk of post-Senate tax bill passage lows stuck, as the pairing closed Friday just under 1.1900. Dollar bulls will tread cautiously going forward however, in light of uncertainty surrounding the Flynn affair, and the potential for new players to get sucked into Mueller’s web. Support comes in at last week’s low of 1.1809.
USD-JPY pulled back from over two-week highs of 113.08 seen early in the session, bottoming at 112.69 into the London close, before recovering over 112.80. The rally which kicked off overnight was sparked by the U.S. Senate’s passing of its tax reform bill. We see USD-JPY as having entered a choppy, net sideways phase, centered around 112.00 to 115.00, with medium term risks to the upside given the potential for a sustained upward ascent in U.S. Treasury yields.
Cable settled around 1.3460 after dropping to a 1.3412 low from levels above 1.3500. The move came as there was no Brexit deal struck. PM May said during a press conference with EU’s Juncker that “differences remain” despite having a “constructive meeting.” She said that “on a couple of issues some differences do remain which require further negotiation and consultation and those will continue.”
EUR-CHF has seen volatile price action over the last two sessions, having on Friday turned sharply lower, to 1.1599 after clocking a 35-month high of 1.1737, subsequently, today, lifting back above 1.1650. There have been multiple failures to sustain gains above 1.1700 over the last month, Friday being the latest, and market participants will be wary of supply above 1.1700. We remain bullish over the medium term. Assuming the Eurozone has conquered, or can conquer, existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable, we continue to anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1650.
USD-CAD traded briefly under its 50-day moving average at 1.2661 into the North American open, before later recovering to 1.2716 highs. Softer oil prices provided some support, as did a generally firmer greenback. Friday’s stronger Canada employment and GDP reports though, should limit gains going forward, as the market begins to price in a Q1 2018 BoC rate hike. We don’t expect last week’s encouraging data to push the Bank to raise rates at this week’s policy meeting.