USD/CAD, or US dollar to Canadian dollar, is a major currency pair and is heavily traded in foreign exchange markets. Given that crude oil and refined petroleum products make up a significant portion of Canadian exports, USD/CAD tends to track global commodity prices. Similar to other commodity currency pairs, USD/CAD tends to depreciate during economic booms (CAD appreciates) while strengthening (CAD depreciates) during downturns. Looking at recent history, USD/CAD appreciated significantly during the 2008 financial crisis and following an emerging markets downturn in 2016.
The US dollar is currently steady against all major currencies. Yesterday, the US dollar index (a broad measure of the currency) ended the day slightly lower after making four consecutive higher-highs earlier this week. While the buck was much weaker at the outset of the day, buyers pushed up the currency during New York trading hours. Today's US dollar index trading range remains 95.50 - 97.0.
There are no fundamentals developments driving the dollar today. After most major financial assets entered overbought or oversold conditions earlier this week, currency markets are adjusting accordingly. Looking at the US dollar, there may be an opportunity to go long the currency if the buck falls towards the low-end of its trading range in the near future.
Turning to economic data, initial jobless claims continued decelerating this week. This is a positive development for the US economy, and suggests that the labor market continues to fire on all cylinders. Given the Federal Reserve's mandate to maintain full employment, the health of the labor market is watched closely by the Fed. As all (backwards-looking) economic data points to accelerating growth and inflation, the Fed is more likely to continue raising rates. In turn, this helps the buck. Our outlook on the dollar remains bullish.
|August 14||Export Prices YoY JUL||4.3%||5.3%|
|August 14||Import Prices YoY JUL||4.8%||4.7%|
|August 15||Retail Sales YoY JUL||6.4%||6.1%|
|August 15||Capacity Utilization JUL||78.1%||78.1%|
|August 15||Industrial Production YoY JUL||4.2%||4%|
|August 15||Manufacturing Production YoY JUL||2.8%||2.3%|
|August 15||Business Inventories MoM JUN||0.1%||0.3%|
|August 16||Building Permits JUL||1.311M||1.292M|
|August 16||Housing Starts JUL||1.168M||1.158M|
|August 16||Initial Jobless Claims 11/AUG||212K||214K|
|August 17||Michigan Consumer Sentiment Prel AUG||97.9|
The Canadian dollar is currently mixed. The loonie is selling off against the euro and the Australian dollar, while strengthening against other major currencies. Yesterday, the loonie was the weakest major currency, ending the day lower against its peers. Despite a small rally in commodity prices and a softer US dollar, the Canadian dollar was out of favor, ending lower against the US dollar for the second consecutive day. Today's trading range for USD/CAD is 1.3080 - 1.3390.
Growing uncertainty regarding NAFTA negotiations is starting to weigh on the Canadian dollar. Yesterday, US trade representative Robert Lighthizer said he hopes there will be a breakthrough in NAFTA negotiations in the next few days. However, US President Donald Trump told Lighthizer that he is in no rush for a resolution, and is ready to walk away from talks if necessary. Trump said that "We’re either going to do a fair NAFTA for us or we’re not going to do NAFTA at all.” He added that “If you can’t make the right deal, don’t make it.” Trump has been vocal about NAFTA negotiations recently, casting doubt on whether or not the US, Mexico and Canada can reach an agreement.
Later today we'll see Canadian inflation numbers. Traders will be looking for signs that inflation is continuing to strengthen after last month's 2.5% year-over-year increase showed the biggest pick-up in inflation since 2012. Rising inflation is a major factor in the Bank of Canada's monetary policy, and continued strength increases the likelihood of future rate hikes. Yesterday we downgraded our outlook for the Canadian dollar to bearish.
The USD/CAD exchange rate is currently above 1.3130. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.4980. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.6710. CAD/JPY is flat, and currently trading above 84.30.
|August 15||New Motor Vehicle Sales JUN||204.4K||220.3K|
|August 16||ADP Employment Change JUL||11.6K||-10.5K|
|August 16||Manufacturing Sales MoM JUN||1.1%||1.4%|
|August 17||Core Inflation Rate YoY JUL||1.3%|
|August 17||Inflation Rate YoY JUL||2.5%|
|August 17||Foreign Securities Purchases JUN||C$2.18B|
|August 17||Foreign Securities Purchases by Canadians JUN||C$5.69B|
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