USD/CAD – Canadian Dollar Slides as Canadian GDP Contracts

The Canadian dollar continues to show a lack of movement this week. In the Tuesday session, USD/CAD is trading at 1.2903, up 0.51% on the day. In economic news, Canadian GDP declined 0.1%, short of the estimate of +0.1%. On the inflation front, the Raw Materials Price Index dropped 0.1%, missing the forecast of 0.4%. Later in the day, BoC Governor Stephen Poloz testifies before the House of Commons Standing Committee on Finance in Ottawa. In the US, today’s key event is CB Consumer Confidence, which is expected to climb to 121.1 points. Wednesday is a busy day, with the US releasing two key events – ADP Nonfarm Payrolls and ISM Manufacturing PMI. As well, the FOMC will release its monthly rate statement.

Canada’s economy contracted in August, surprising the markets, which had expected a small gain. The decline of 0.1% was the first drop since October 2016. The soft reading has pushed USD/CAD above the 1.29 line at the start of the North American session. The Canadian dollar is on the verge of dropping to a 10-week low,and has endured a miserable October, slipping some 3.5 percent.

There were no surprises from the Bank of Canada last week, as the Bank maintained the benchmark rate at 1.00 percent. In its rate statement, the Bank noted that wage growth levels remain weak, as there is slack in the labor market. Inflation pressure from wage growth remains muted, but the Bank did not provide a reason why inflation levels are so low. This problem is apparent south of the border as well, where a robust US economy and red-hot labor market has not translated into higher inflation. The cautious tone of the BoC did not impress investors, and the Canadian dollar shed close to 1.0 percent after the rate announcement.

All eyes are on the Federal Reserve, which will release a rate statement on Wednesday. The Fed is not expected to raise rates, so analysts will be combing through the rate statement, looking for clues about future rate moves. The markets have priced in a December rate hike at whopping 96%, and the markets are focusing on what the Fed has planned for 2018. This will depend, of course, on the new head of the Fed, who will take over from Janet Yellen in February. The two front-runners, John Taylor and Jerome Powell, have very different stances on monetary policy, which has created some suspense ahead of President Trump’s nomination. Trump is expected to choose the new head before departing for Asia at the end of the week. Powell is expected to continue Yellen’s incremental approach to raising rates, while Taylor is a proponent of much higher rates, as underscored in his “Taylor Rule”, which calls for higher rates when inflation is high or the labor market is at full capacity.

USD/CAD Fundamentals

Tuesday (October 31)

• 8:30 US Employment Cost Index. Estimate 0.7%. Actual 0.7%
• 8:30 Canadian GDP. Estimate 0.1%. Actual -0.1%
• 8:30 Canadian RMPI. Estimate 0.4%. Actual -0.1%
• 8:30 Canadian IPPI. Estimate 0.5%. Actual -0.3%
• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.8%
• 9:45 US Chicago PMI. Estimate 60.2
• 10:00 US CB Consumer Confidence. Estimate 121.1
• 15:30 BoC Governor Stephen Poloz Speaks

Wednesday (November 1)

• 8:15 US ADP Nonfarm Employment Change. Estimate 191K
• 10:00 US ISM Manufacturing PMI. Estimate 59.4
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.25%

*All release times are GMT

*Key events are in bold

USD/CAD for Tuesday, October 31, 2017

USD/CAD Tuesday, October 31 at 8:40 EDT

Open: 1.2833 High: 1.2853 Low: 1.2823 Close: 1.2902

USD/CAD Technical

USD/CAD was flat in the Asian and European sessions and has posted gains early in North American trade

• 1.2778 is providing support
• 1.2943 is the next resistance line
• Current range: 1.2778 to 1.2943

Further levels in both directions:

• Below: 1.2778, 1.2701, 1.2598
• Above: 1.2943, 1.3032 and 1.3126

OANDA’s Open Positions Ratio

USD/CAD ratio is showing little movement in the Tuesday session. Currently, long positions have a slender majority (51%), 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.