USD/CAD – Canadian Dollar Slips to 5-Week Lows on BoC Concerns

USD/CAD continues to rally this week. The pair has posted slight gains on Wednesday, trading at 1.3345 in the North American session. It has been a busy day on the release front in both Canada and the US. In Canada, the Bank of Canada maintained the benchmark rate at 0.50%. The current account deficit narrowed to C$10.7 billion in the fourth quarter. Although this was higher than expected, it marked the lowest deficit since 2014. On the manufacturing front, RBC Manufacturing PMI improved to 54.7, pointing to expansion. In the US, key indicators were mixed. Personal Spending slipped to 0.2%, shy of the forecast of 0.3%. In the US, ISM Manufacturing PMI improved to 57.7, marking a sixth straight month that the index has risen higher.

As expected, the BoC held rates at 0.50%, where they have been pegged since July 2015. In its rate statement, the central bank expressed “significant uncertainties” facing the economy, including a lack of clarity over Donald Trump’s economic agenda. Trump has called for the NAFTA trade agreement to be scrapped, although he has since backtracked and said that he only wanted to “tweak” the provisions that affect Canada-US trade. Still, Trump’s protectionist leanings could hurt the Canadian economy, which sends 80% of its exports to its southern border. Even if NAFTA is left alone, the US could slap import duties on Canadian products, which would have negative ramifications for the Canadian economy.

There was plenty of anticipation in the air ahead of President Trump’s speech to Congress. In the end, however, the speech was short on specifics and the markets haven’t shown much reaction in the Wednesday session. Trump promised “massive” tax relief for the middle class as well as corporate tax cuts. However, he failed to provide details or even timelines on tax reform or infrastructure spending, two themes which he has discussed since the election campaign. Trump stated that he will ask Congress to approve legislation for $1 trillion in infrastructure spending, “financed through both public and private capital”. Analysts noted that although Trump touched on the protectionist theme, such as the trade imbalance with China, his tone was less belligerent than we’ve seen in the past.

USD/CAD continues to move higher, boosted by hawkish statements from Federal Reserve policymakers. The pair has climbed 1.7% this week and is trading at 5-week highs. On Tuesday, FOMC members William Dudley and John Williams both hinted at an imminent hike by the Fed, which has raised the odds of a March hike at 66%, according to Reuters. Dudley said the case for a hike is compelling, while Williams noted that a rate increase will be up for “serious consideration” at the March policy meeting. The markets will be listening closely to speeches from other FOMC members this week, culminating in speeches from Janet Yellen and Fed Governor Stanley Fischer on Friday.

USD Surges as Markets Back March Fed Rate Hike

USD/CAD Fundamentals

Wednesday (March 1)

• 8:30 Canadian Current Account. Estimate. -9.6B. Actual -10.7B
• 8:30 US Core PCE Price Index. Estimate 0.3%. Actual 0.3%
• 8:30 US Personal Spending. Estimate 0.3%. Actual 0.2%
• 8:30 US Personal Income. Estimate 0.3%. Actual 0.4%
• 9:30 Canadian RBC Manufacturing PMI. Actual 54.7
• 9:45 US Final Manufacturing PMI. Actual 54.4
• 10:00 BoC Rate Statement
• 10:00 BoC Overnight Rate. Estimate 0.50%. Actual 0.50%
• 10:00 US ISM Manufacturing PMI. Estimate 56.2. Actual 57.7
• 10:00 US Construction Spending. Estimate 0.7%. Actual -1.0%
• 10:00 US ISM Manufacturing Prices. Estimate 68.5. Actual 68.0
• 10:30 US Crude Oil Inventories. Estimate 1.5M
• All Day – US Total Vehicle Sales. Estimate 17.7M
• 13:00 US FOMC Member Robert Kaplan Speech
• 14:00 US Beige Book
• 18:00 US FOMC Member Lael Brainard Speech

Upcoming Key Events

Thursday (March 2)

• 8:30 US Unemployment Claims. Estimate 243K

*All release times are GMT

*Key events are in bold

USD/CAD for Wednesday, March 1, 2017

USD/CAD March 1 at 11:00 EST

Open: 1.3313 High: 1.3357 Low: 1.3283 Close: 1.3352

USD/CAD Technical

• USD/CAD was flat in the Asian and European sessions. USD/CAD has posted small gains in North American trade
• 1.3253 is providing support
• 1.3371 is a weak resistance line and could break in the North American session

Further levels in both directions:

• Below: 1.3253, 1.3120, 1.3003 and 1.2922
• Above: 1.3371, 1.3461 and 1.3551
• Current range: 1.3253 to 1.3371

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Wednesday session. Currently, short positions have a strong majority (64%), indicative of trader bias towards USD/CAD reversing directions and moving lower.

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