USD/CAD – Canadian Dollar Improves, Canadian CPI Looms

USD/CAD has posted gains in the Thursday session. Early in North American trade, the pair is trading at the 1.31 line. On the release front, Canadian Corporate Profits posted a gain of 3.6%. This marked a second straight gain after four straight declines. In the US, unemployment claims rose to 244 thousand, slightly above the estimate of 242 thousand. As well, Treasury Secretary Robert Mnuchin will speak at an interview with CNBC. Friday will be busy, as Canada releases CPI. In the US there are two key events – New Home Sales and UoM Consumer Sentiment.

On Wednesday, the Federal Reserve released the minutes of its January policy meeting. However, there were no dramatic comments in the minutes, which were slightly dovish in tone. The key statement in the minutes was that a rate hike “fairly soon” could be appropriate in order to head off an overheated economy. The minutes indicated that Fed policymakers remain confident that the central bank will raise rates gradually, given the strong performance of the US economy. At the same time, the minutes noted uncertainty about President Trump’s fiscal stimulus plan but little concern over the risk of inflation. Bottom line? Although pressure is slowly building towards a rate hike, there does not appear a sense of urgency to raise rates at the next meeting in March. According to the CME Group, the odds of a March hike are only at 17%, while the likelihood of a hike in either May or June stands above 40%.

Canadian consumers are in a surly mood and cut back in spending in December, to the surprise of the markets. Core Retail Sales declined 0.3%, compared to a forecast of +0.8%, while Retail Sales dropped 0.5%, missing the forecast of +0.1%. Will inflation levels point upwards despite weak consumer spending? The week wraps up with a host of inflation indicators on Friday, highlighted by CPI. The index has posted two straight declines, but the markets are expecting a 0.3% gain in the January report. If CPI exceeds expectations, the Canadian dollar could continue to move higher.

USD/CAD Fundamentals

Thursday (February 23)

• 7:00 US Treasury Secretary Steven Mnuchin Speaks
• 8:30 US Unemployment Claims. Estimate 242K. Actual 244K
• 8:30 Canadian Corporate Profits. Actual 3.6%
• 9:00 US HPI. Estimate 0.4%
• 10:30 US Natural Gas Storage. Estimate -86B
• 11:00 US Crude Oil Inventories. Estimate 3.4M
• 13:00 US FOMC Member Robert Kaplan Speech

Upcoming Key Events

Friday (February 24)

• 8:30 Canadian CPI. Estimate 0.3%
• 10:00 US New Home Sales. Estimate 575K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 96.1

*All release times are GMT

*Key events are in bold

USD/CAD for Thursday, February 23, 2017

USD/CAD February 23 at 8:45 EST

Open: 1.3163 High: 1.3170 Low: 1.3101 Close: 1.3103

USD/CAD Technical

• USD/CAD edged lower in the Asian session and has continued to lose ground in European trade
• 1.3003 is providing support
• 1.3120 has switched to resistance following losses from USD/CAD in the Thursday session

Further levels in both directions:

• Below: 1.3003, 1.2922 and 1.2815
• Above: 1.3120, 1.3253, 1.3371 and 1.3461
• Current range: 1.3003 to 1.3120

OANDA’s Open Positions Ratio

USD/CAD ratio continues to show gains in short positions this week. Currently, long positions have a slender majority (51%), indicative of a lack of trader bias as to what direction USD/CAD will take next.

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