USD/CAD – Canadian Dollar Improves, US Inflation Dips Lower

The Canadian dollar has posted losses in the Wednesday session, erasing the gains seen on Tuesday. In the North American session, USD/CAD is trading at 1.2880, down 0.54% on the day. On the release front, Canadian Building Permits jumped 3.1%, crushing the estimate of 2.0%. In the US, PPI dropped to 0.1%, shy of the estimate of 0.2%. Core PPI edged lower to 0.2%, matching the forecast. On Thursday, the US will publish consumer inflation reports.

The NAFTA negotiations continue this week, as senior officials from Canada, the US and Mexico are meeting in Washington to try and hammer out a new trilateral trade agreement. However, progress has been slower than hoped for, and a major stumbling block remains a US demand to raise the North American content of automobiles in order to avoid tariffs. Mexico is suspicious that the US is pushing a deal that will bring manufacturing jobs from Mexico back to the US. There are serious time constraints on reaching an agreement. Mexico is holding a general election in early July, and US President Trump wants to wrap up a deal before mid-term elections in November.

US President Trump dropped a bombshell on Tuesday, in announcing that the US would withdraw from the Iran nuclear deal. However, the currency markets are not showing much movement in response to the speech. The Canadian dollar has posted gains on Wednesday, as demand for safe-haven assets remained muted. In his televised remarks, Trump blasted the agreement and said that the US would reimpose stiff sanctions on Iran. However, Britain, France and Germany have said they plan to remain in the deal, and will be holding a high-level meeting with Iranian leaders on how the agreement can be salvaged. With the US acknowledging that the White House does not have a ‘Plan B’, it’s unclear what happens next. Meanwhile, tensions between Israel and Iran are at a fever pitch, and any confrontation between the two could shake up the markets.

The Federal Reserve’s newest regional Fed president, Thomas Barkin, delivered a major speech on Monday, and his tone was decidedly upbeat. Barkin said that the economy is “remarkably strong: above-trend growth, low unemployment, inflation at target”. Barkin added that although the labor market is strong, it is not causing pressure on wages, but low unemployment should lead to an increase in inflationary pressures. As for upcoming rate increases, Barkin was careful to remain mum on how many rate hikes he expects this year. The Fed raised rates in March by a quarter-point and continues to forecast two additional increases this year. However, some policymakers are calling for three more hikes, given the strong health of the US economy.

U.S Dollar Rises on Higher Yields, EM pairs suffer

More Volatility on the Way!!

USD/CAD Fundamentals

Wednesday (May 9)

• 8:30 Canadian Building Permits. Estimate 2.0%
• 8:30 US PPI. Estimate 0.2%
• 8:30 US Core PPI. Estimate 0.2%
• 10:00 US Final Wholesale Inventories. Estimate 0.6%
• 10:30 US Crude Oil Inventories. Estimate -0.2M
• 13:01 US 10-year Bond Auction

Thursday (May 10)

• 8:30 Canadian NHPI. Estimate 0.0%
• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Unemployment Claims. Estimate 219K

*All release times are DST

*Key events are in bold

USD/CAD for Wednesday, May 9, 2018

USD/CAD, May 9 at 8:40 DST

Open: 1.2950 High: 1.2975 Low: 1.2872 Close: 1.2881

USD/CAD Technical

USD/CAD was flat in the Asian session and has posted losses in European trade

• 1.2850 is providing support
• 1.2943 is the next line of resistance
• Current range: 1.2850 to 1.2943

Further levels in both directions:

• Below: 1.2850, 1.2757 and 1.2687
• Above: 1.2943, 1.3015, 1.3125 and 1.3223

OANDA’s Open Positions Ratio

USD/CAD ratio is showing slight movement towards short positions. Currently, short positions have a majority (60%), indicative of trader bias towards USD/CAD continuing to move downwards.

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.