USD/CAD – Canadian Dollar Trading Sideways, Fed Announcement Next

The Canadian dollar continues to trade quietly this week. In the Wednesday session, USD/CAD is trading at 1.2837, down 0.10% on the day. On the release front, there are no Canadian events on the schedule. In the US, ADP Nonfarm Payrolls are expected to slide to 200 thousand. As well, the Federal Reserve will set the benchmark interest rate and issue a rate statement. On Thursday, the US releases unemployment claims and ISM Non-Manufacturing PMI, and Canada will release Trade Balance.

Canada’s economy grew by 0.4% in February, above the estimate of 0.3%. This was a welcome rebound from January, when GDP contracted 0.1%. The economy has endured a sluggish first quarter, and unless March GDP is outstanding, growth in the first quarter will fall under 2%.

All eyes are on the Federal Reserve, which will release a rate statement on Wednesday. Policymakers are expected to maintain the benchmark rate at a range between 1.50% and 1.75%, and analysts will be keeping a close eye on the rate statement for clues about future rate hikes. Although the Fed is currently projecting three rate hikes in 2018, there is growing sentiment that the Fed will bump this up to four increases. The Fed last raised rates in March, and some analysts see the Fed raising rates once each quarter  – in June, September and December. Higher inflation has raised speculation that the Fed will consider raising its rate hike forecast. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, hit the Fed’s target of 2% inflation for the first time in a year in March.

US President Trump made waves when he imposed tariffs on steel and aluminum imports earlier in the year. However, Trump announced this week that he had extended exemptions on the tariffs for Canada and Mexico for another 30 days. The exemptions come at a sensitive time, with the US, Canada and Mexico neck deep in negotiations over a new NAFTA trade agreement. The talks have made significant progress, but the critical auto pact remains a stumbling block. It is likely that a tentative agreement will be hammered out, perhaps later this month. The Bank of Canada has dropped strong hints that it plans to raise interest rates later this year, but policymakers would like the NAFTA issue to be resolved before the next rate hike.

Dollar Stronger on Possibility Fed to Step up Tightening Pace

USD/CAD Fundamentals

Wednesday (May 2)

• 8:15 US ADP Nonfarm Employment Change. Estimate 200K
• 10:30 US Crude Oil Inventories. Estimate 1.0M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.75%

Thursday (May 3)

• 8:30 Canadian Trade Balance. Estimate -2.3B
• 8:30 US Unemployment Claims. Estimate 225K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 58.1

*All release times are DST

*Key events are in bold

USD/CAD for Wednesday, May 2, 2018

USD/CAD, May 2 at 7:55 DST

Open: 1.2850 High: 1.2858 Low: 1.2804 Close: 1.2836

USD/CAD Technical

USD/CAD ticked lower in the Asian session. The pair edged lower in the European session but has recovered

• 1.2757 is providing support
• 1.2850 is the next resistance line. It is a weak line
• Current range: 1.2757 to 1.2850

Further levels in both directions:

• Below: 1.2757, 1.2687 and 1.2590
• Above: 1.2850, 1.2943, 1.3015 and 1.3125

OANDA’s Open Positions Ratio

USD/CAD ratio is showing little movement this week. Currently, short positions have a majority (59%), indicative of slight trader bias towards USD/CAD continuing to move downwards.

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