USD/CAD – Canadian Dollar in Holding Pattern Ahead of GDP

The Canadian dollar is unchanged on Friday, the final session before the week of Christmas. Currently, USD/CAD is trading at the 1.35 line. On the release front, the markets are keeping a close eye on today’s key indicators out of Canada and the US. Canadian markets will be closed on Monday and Tuesday.

After an uneventful week, there was plenty of data for the markets to digest on Thursday. US Final GDP for the third quarter posted an excellent gain of 3.5%, above the forecast of 3.3%. Durable goods reports were a mixed bag. Core Durable Goods Orders gained 0.5%, above the forecast of 0.2%. Durable Goods Orders posted a sharp decline of 4.6%, but this was better than the forecast of -4.9%. On the employment front, unemployment claims jumped to 275 thousand, much weaker than the forecast of 255 thousand. Still, the for-week average of jobless claims remains at very low levels.

In Canada, key numbers were a mixed bag on Thursday. Inflation indicators disappointed and headed downwards, as CPI came in at -0.4%, while Core CPI posted a reading of -0.5%. Both indicators missed their estimates of -0.1%. There was much better news on the consumer spending front, as Core Retail Sales surged 1.4% (estimate 0.7%) and Retail Sales gained 1.1% (estimate 0.2%).

The US economy continues to grow at a brisk clip. Final GDP, the last of three GDP reports, was revised upwards to 3.5%, beating the estimate of 3.3%. The previous GDP forecast was 3.2%. The stellar reading can be attributed to stronger consumer spending and an increase in business investment, and marked the strongest growth rate since the third quarter of 2015.

Now that the Federal Reserve has taken the leap and raised rates by a quarter point, what can we expect from the Fed in the coming months? In September, when speculation of a rate hike began to heat up, Fed officials said they expected two rate hikes in 2017. However, with the US economy showing solid growth and the labor market close to capacity, the Fed is now projecting three or even four hikes next year. However, projections can change based on conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the incoming Trump administration could play a critical role in the Fed’s monetary stance. Trump’s economic platform remains sketchy, but there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s plans to cut taxes and increase fiscal spending will lead to higher inflation. If inflation levels do heat up in early 2017, there will be pressure on the Fed to step in and raise interest rates.

USD/CAD Fundamentals

Friday (December 23)

• 8:30 Canadian GDP. Estimate 0.1%
• 10:00 US New Home Sales. Estimate 575K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 98.2

*All release times are EST

*Key events are in bold

USD/CAD for Friday, December 23, 2016

USD/CAD December 23 at 6:45 EST

Open: 1.3481 High: 1.3501 Low: 1.3477 Close: 1.3498

USD/CAD Technical

• USD/CAD was flat in the Asian session and has posted slight gains in European trade
• 1.3457 is providing support
• 1.3589 is the next resistance line

Further levels in both directions:

• Below: 1.3457, 1.3371, 1.3253 and 1.3120
• Above: 1.3589, 1.3759 and 1.3889
• Current range: 1.3457 to 1.3589

OANDA’s Open Positions Ratio

USD/CAD ratio is showing slight gains in short positions. Currently, short positions have a majority (55%), indicative of trader bias towards USD/CAD continuing to move upwards.

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