USD/CAD – Canadian Dollar Rally Continues, US Jobless Claims Next

USD/CAD has posted slight gains in the Wednesday session, as the pair trades at the 1.31 line. It’s been a good week for the Canadian dollar, which has posted gains of 1.5 percent. On the release front, there are no Canadian events for the remainder of the week. The US will release Crude Oil Inventories, with a third straight surplus expected. On Thursday, the US releases two key indicators – Unemployment Claims and New Home Sales.

Less than a week on the job, Donald Trump has already taken protectionist measures, signaling a major change in US economic policy. On Monday, Trump signed an executive order formally withdrawing the US from the Trans-Pacific Partnership, a broad trade agreement which the US had signed but not ratified. Trump had promised to leave the TPP during the election, arguing that the deal would hurt American workers. Next stop is NAFTA, which Trump has said he will renegotiate with Canada and Mexico. Understandably, Canadian officials are worried about the new US administration’s protectionist stance, and Prime Minister Justin Trudeau and his cabinet are meeting in Calgary to plan the government’s strategy in dealing with Trump. The US is Canada’s largest trade partner and protectionist moves by the US could be devastating to the Canadian economy. However, on Monday, Trump’s senior business adviser, Stephen Schwarzman, said Canada had little cause for concern. Trump’s sights may be set more on Mexico than Canada, as he has threatened to impose tariffs on companies that move production to Mexico. Still, investors will be wary about NAFTA unraveling, as the trade agreement has been part of the economic landscape for over 20 years. These concerns could prompt investors to dump their Canadian dollars and flock to the safe-haven US dollar.

As a commodity-based currency, the Canadian dollar is sensitive to changes in oil prices. The recent production agreement between OPEC and other oil producers took effect on January 1, so we could see some volatility in oil prices in the coming weeks and months. Last week, the International Energy Agency predicted a “significant” boost to US output as a result of the OPEC agreement. With some 35 US rigs commencing operations last week, according to Baker Hughes, US oil production continues to climb. This rise in US production is apparent from recent releases of US Crude Inventories, which point to a large surplus in stockpiles. Last week, the indicator recorded a gain of 2.3 million barrels, after a surplus of 4.1 million barrels a week earlier. The markets are expecting another surplus of 1.5 million on Wednesday. If US production continues to rise and offsets the cutbacks announced by OPEC, oil prices could reverse directions and head lower.

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USD/CAD Fundamentals

Wednesday (January 25)

• 9:00 US HPI. Estimate 0.4%
• 10:30 US Crude Oil Inventories. Estimate 1.5M

Upcoming Key Releases

Thursday (January 26)

• 8:30 US Unemployment Claims. Estimate 247K
• 10:00 US New Home Sales. Estimate 585K

*All release times are GMT

*Key events are in bold

USD/CAD for Wednesday, January 25, 2017

USD/CAD January 25 at 8:15 EST

Open: 1.3155 High: 1.3163 Low: 1.3082 Close: 1.3100

USD/CAD Technical

• USD/CAD was flat in the Asian session and has posted losses in European trade
• 1.3003 is providing support
• 1.3120 is a weak resistance line

Further levels in both directions:

• Below: 1.3003, 1.2922 and 1.2815
• Above: 1.3120, 1.3253, 1.3371 and 1.3457
• Current range: 1.3003 to 1.3120

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Wednesday session. Currently, long and short positions are close to an event split, indicative of a lack of trader bias as to what direction USD/CAD takes next.

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.