USD/CAD – Canadian Dollar Yawns as US Inflation Data Disappoints

The Canadian dollar is unchanged in Thursday trade. In the North American session, USD/CAD is trading at the 1.2701, up 0.03% on the day. On the release front, Canadian NHPI posted a gain of 0.2%, short of the forecast of 0.5%. In the US, inflation releases missed expectations, as PPI and Core PPI both posted declines of 0.1%. Unemployment claims rose to 244 thousand, higher than the estimate of 240 thousand.

Global markets remain uneasy, as tensions continue to ratchet higher between North Korea and the US. With the war of words escalating between the two countries, global markets are down, as investors have dumped shares in favor of safe-haven assets, such as gold. North Korea has vowed to retaliate over new sanctions imposed by Washington and has threatened to attack Guam, which is a major US military base. President Trump and North Korean President Kim Jong-un are on a possible collision course, which has caused alarm in South Korea and Japan, strong allies of the US.

In contrast to the uncertainty over the Fed’s monetary plans, the Bank of Canada is leaning towards further tightening, possibly before the end of 2017. The bank raised interest rates in July and the odds of a rate increase in October are at 78 percent. In May, annualized GDP was up 4.6%, and the labor market continues to produce jobs. The increase in oil prices has revived the economy has also pushed the Canadian dollar higher. At the same time, similar to the situation in the US, inflation remains subdued, despite a stronger economy and an improving labor market. The lack of inflation could cause the Federal Reserve to abandon plans for another rate hike this year, and this could also lead to the BoC deciding to delay a rate hike until inflation moves higher.

The markets are looking for some clarity from the Federal Reserve, which is showing signs of backtracking on another rate hike in 2017. Earlier this year, the Fed strongly hinted that it planned to raise rates three times in this year, but so far only pressed the rate trigger twice, in March and June. After the June hike, Fed Chair Janet Yellen shrugged off concerns over low inflation, saying that it was due to “transient” factors. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The Fed appears uncertain about when to raise rates, and predictably, this hesitancy is making investors skeptical that the Fed will act. There is little chance that the Fed will make any moves at the September and November meetings, and the odds of a rate hike in December are currently at 42%. Analysts are hoping for some insight into the Fed’s thinking when the Fed Reserve Dallas President Robert Kaplan and Minneapolis President Neel Kashkari deliver speeches on Friday.

USD/CAD Fundamentals

Thursday (August 10)

• 8:30 Canadian NHPI. Estimate 0.5%. Actual 0.2%
• 8:30 US PPI. Estimate 0.1%. Actual -0.1%
• 8:30 US Unemployment Claims. Estimate 240K. Actual 244K
• 8:30 US Core PPI. Estimate 0.2%. Actual -0.1%
• 10:00 US FOMC Member William Dudley Speaks
• 10:30 US Natural Gas Storage. Estimate 38B
• 13:01 US 30-y Bond Auction
• 14:00 US Federal Budget Balance. Estimate -60.9B

Friday (August 11)

• 8:30 US CPI. Estimate 0.2%
• 8:30 US Core CPI. Estimate 0.2%
• 9:40 US FOMC Member Robert Kaplan Speaks
• 11:30 US FOMC Member Neel Kashkari Speaks

*All release times are GMT

*Key events are in bold

USD/CAD for Thursday, August 10, 2017

USD/CAD Thursday, August 10 at 8:40 EDT

Open: 1.2698 High: 1.2735 Low: 1.2692 Close: 1.2701

USD/CAD Technical

USD/CAD has edged higher in the Asian session and is showed limited movement in European trade. Early in the North American session, the pair has edged lower

• 1.2701 has switched to a support role and remains fluid
• 1.2815 is the next resistance line
• Current range: 1.2701 to 1.2815

Further levels in both directions:

• Below: 1.2701, 1.2562, 1.2445 and 1.2302
• Above: 1.2815, 1.2943 and 1.30

OANDA’s Open Positions Ratio

USD/CAD ratio continues to showing slight movement towards long positions. Currently, long positions have a strong majority (73%), indicative of trader bias towards USD/CAD continuing to move upwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.