USD/CAD – Weak Canadian Dollar at 1.34, Wholesales Sales Next

The Canadian dollar remains under pressure in the Tuesday session. Currently, USD/CAD is trading slightly above the 1.34 line. On the release front, it’s another quiet day, with no US events on the schedule. Canada will release Wholesales Sales, with the estimate standing at 0.3%.

The US dollar posted broad gains after last week’s Federal Reserve rate hike, and the Canadian currency has not been immune. The Canadian dollar has lost 2 percent since Wednesday. The currency is close to 3-week lows, and USD/CAD could continue to climb. Rising oil prices in early December boosted the Canadian dollar, but these gains have been erased since the Fed hiked interest rates.

When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.

With the one rate hike in 2016 behind us, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.

USD/CAD Fundamentals

Tuesday (December 20)

• 8:30 Canadian Wholesale Sales. Estimate 0.3%

*All release times are EST

*Key events are in bold

USD/CAD for Tuesday, December 20, 2016

USD/CAD December 20 at 6:35 EST

Open: 1.3405 High: 1.3434 Low: 1.3393 Close: 1.3408

USD/CAD Technical

• USD/CAD was flat in the Asian session and this trend continues in European trade
• 1.3371 is providing support
• 1.3457 is a weak resistance line

Further levels in both directions:

• Below: 1.3371, 1.3253, 1.3120 and 1.3026
• Above: 1.3457, 1.3589 and 1.3813
• Current range: 1.3371 to 1.3457

OANDA’s Open Positions Ratio

USD/CAD ratio has shown gains in short positions. Currently, long positions have a slim majority (52%), indicative of a lack of trader bias as to what direction USD/CAD will take 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.