USD/CAD – Canadian Dollar Steady Ahead of Fed Rate Statement, US Posts Mixed Numbers

The Canadian dollar has edged lower in the Wednesday session. In North American trade, USD/CAD is trading at the 1.31 level. On the release front, today’s highlight is the Federal Reserve’s policy statement. In the US, core retail sales and retail sales posted weak gains of 0.2% and 0.1% respectively, which fell short of estimates. There was better news on the inflation front, as PPI surprised with a gain of 0.4%, marking a five-month high. Thursday will also be busy, as the US releases CPI, the Philly Fed Manufacturing Index and unemployment claims. Canada will publish Manufacturing Sales.

The Canadian dollar has enjoyed a strong month of December, gaining 2.3% against the US dollar. Given that the currency is sensitive to oil prices, much of the currency’s improvement can be attributed to the recent surge in oil prices. OPEC members agreed to cut production earlier this month and proceeded to reach another a production agreement with Russia and other oil exporters on Saturday. The agreement between OPEC and non-OPEC oil exporters was the first since 2001, and if oil prices continue to rise, the loonie could post further gains. However, even with these agreements, it’s unlikely that oil prices will go through the roof. Oil exporters will target a price of about $60, since prices above that level would encourage US shale producers to enter the market, which would increase crude supply and lower prices. It’s also uncertain if oil exporters will abide by their commitments, as breaches of production quotas has been a persistent problem in the past. If the markets “smell a rat” and believe that compliance is lacking, crude prices could quickly head lower.

All eyes are on the Federal Reserve, as the markets anxiously await the Fed’s rate statement. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback.  Even though the rate move has been expected (and priced in) for some time, the markets will be monitoring the statement closely – the currency markets could react based on whether the markets view the Fed’s move as a dovish hike or hawkish hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this monetary outlook could change, given Trump’s declarations that he will increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

Will the Fed Deliver a Wake-Up Call to Markets?

USD/CAD Fundamentals

Wednesday (December 14)

• 8:30 US Core Retail Sales. Estimate 0.4%. Actual 0.2%
• 8:30 US PPI. Estimate 0.1%. Actual 0.4%
• 8:30 US Retail Sales. Estimate 0.3%. Actual 0.1%
• 8:30 US Core PPI. Estimate 0.2%. Actual 0.4%
• 9:15 US Capacity Utilization Rate. Estimate 75.1%
• 9:15 US Industrial Production. Estimate -0.2%
• 10:00 US Business Inventories. Estimate -0.1%
• 10:30 US Crude Oil Inventories. Estimate -1.4M
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.75%
• 14:30 US FOMC Press Conference

Upcoming Key Events

Thursday (December 15)

• 8:30 Canadian Manufacturing Sales. Estimate o.7%
• 8:30 US CPI. Estimate 0.2%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Philly Fed Manufacturing Index. Estimate 9.1
• 8:30 US Unemployment Claims. Estimate 258K

*All release times are EST

*Key events are in bold

USD/CAD for Wednesday, December 14, 2016

USD/CAD December 14 at 8:40 EST

Open: 1.3125 High: 1.3142 Low: 1.3090 Close: 1.3103

USD/CAD Technical

• USD/CAD was flat in the Asian session and has posted slight losses in European trade
• 1.3026 is providing support
• 1.3120 is fluid and is currently a weak resistance line

Further levels in both directions:

• Below: 1.3026, 1.2951 and 1.2815
• Above: 1.3120, 1.3253, 1.3371 and 1.3457
• Current range: 1.3026 to 1.3120

OANDA’s Open Positions Ratio

USD/CAD ratio is almost unchanged in the Wednesday session. Currently, long positions have a majority (59%), indicative of trader bias towards USD/CAD reversing directions and moving higher.

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.