Canadian Data Crushed by Monster Data Disappointment

The Canadian dollar was crushed by worse than expected domestic data on Friday, and it hasn’t recovered. The October 20 release of August Retail Sales and the September inflation report disappointed markets and sent traders scrambling to sell Canadian dollars.

External events were also putting downward pressure on the Canadian dollar.  The US dollar rallied steadily throughout last week, supported by robust US data pointing to a December rate increase.  President Trump opened a can of worms when he announced plans to interview prospective replacement for Fed Chair Janet Yellen, whose term ends in February. FOMC member Jerome Powell is a front-runner in a race that reportedly has five candidates.  Traders are concerned that a new Fed Chair may increase the pace of rate hikes.

The Canadian dollar remained under pressure overnight and opened in New York with a bearish bias.  USDCAD broke major resistance at 1.2590, and the door is wide open for a move to 1.2770.

FX markets began the week digesting election results from Japan.  The incumbent Prime Minister, Shinzo Abe and his Liberal Democratic Party won a resounding victory.  USDJPY rallied on the news which keeps the focus for additional gains.

The New Zealand dollar has been falling for the past two weeks due to an election victory by the Labour Party. It finally got a reprieve overnight, and prices rallied, although it may just be short-term relief.  AUDUSD  traded in a tight 0.7803-33 range.

EURUSD started the New York session at the bottom of its 1.1736-1.1776 range.  The single currency is under pressure from US rate hike expectations, the Fed Chair debate, and from position adjusting ahead of Thursday’s ECB meeting.  There is also a little concern over Spain’s promised to take over the government of Catalonia.  A break below major support at 1.1670 will extend losses to 1.1550.

Sterling is caught up in the broad US dollar strength with an under-current of “hard” Brexit lingering.  As in any divorce, the size of the divorce settlement is the key to additional negotiations.

Oil prices extended Friday’s gains supported by a drop in the US rig count and increased US/Iran tensions.  WTI traded in a $51.77-$52.27 range.   Gold prices opened lower in Asian and then chopped in a $1,274.29-$1,278.13 range, undermined by diminished risk aversion and the outlook for US interest rates.

USDCAD traders are awaiting Wednesday’s Bank of Canada  Monetary Policy Report and press conference.   The risk is that Governor Poloz could be more dovish than expected due to the state of the NAFTA talks. If so, a dovish outlook and bullish technicals will lead to USDCAD testing 1.2770.

 

 

 

 

FX Ranges for major currency pairs

 

20-Oct-17 23-Oct-17
close open High Low
EURUSD 1.1783 1.1736 1.1776 1.1736
USDJPY 113.52 113.94 114.08 113.63
GBPUSD 1.3188 1.3169 1.3225 1.3165
USDCHF 0.9861 0.9874 0.9872 0.9832
AUDUSD 0.7816 0.7805 0.7833 0.7803
NZDUSD 0.6952 0.6957 0.6988 0.6933
USDCAD 1.2627 1.2636 1.2638 1.2616
GOLD 1287.77 1280.56 1290.91 1279.50
WTI 51.97 51.85 52.27 51.77

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