USD/CAD – Canadian Dollar Slides on Federal Reserve Hike

The Canadian dollar continues to lose ground in the Thursday session. In North American trade, USD/CAD is trading at 1.3360. On the release front, Canadian Manufacturing Sales was dismal, posting a decline of 0.8%. This was well short of the estimate of a 0.7% gain. In the US, there were a host of key indicators. CPI and Core CPI both posted a small gain of 0.2%, matching the forecasts. Unemployment Claims dipped to 254 thousand, while the Philly Fed Manufacturing Index sparkled, surging to 21.5 points, well above expectations.

The Federal Reserve’s rate hike was widely expected and priced in by the markets at close to 100%. Still, the Canadian dollar has taken a hit, losing 1.5 percent since the rate announcement on Wednesday. The rate hike was historic, marking the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year”. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimate. What’s next for the Fed? 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 can change based on economic conditions, and 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 plans to increase government spending and cut taxes. If Trump’s economic policies lead to higher inflation levels, the Fed may have to step in with larger hikes in order to keep the economy form overheating.

Dot-Plot Blindness has Dollar Bears Bailings

USD/CAD Fundamentals

Thursday (December 15)

  • 8:30 Canadian Manufacturing Sales. Estimate +o.7%. Actual -0.8%
  • 8:30 US CPI. Estimate 0.2%. Actual 0.2%
  • 8:30 US Core CPI. Estimate 0.2%. Actual 0.2%
  • 8:30 US Philly Fed Manufacturing Index. Estimate 9.1. Actual 21.5
  • 8:30 US Unemployment Claims. Actual 254K
  • 8:30 US Current Account. Estimate -111B. Actual -113B
  • 8:30 US Empire State Manufacturing Index. Estimate 3.2. Actual 9.0
  • 9:45 US Flash Manufacturing PMI. Estimate 54.2
  • 10:00 US NAHB Housing Market Index. Estimate 63 points
  • 10:30 US Natural Gas Storage. Estimate -126B
  • 10:30 US BoC Financial System Review
  • 11:15 BoC Governor Stephen Poloz Speech
  • 16:00 US TIC Long-Term Purchases

Upcoming Key Events

Friday (December 16)

  • 13:30 US Building Permits. Estimate 1.24M 
  • 13:30 US Housing Starts. Estimate 1.23M

*All release times are EST

*Key events are in bold

USD/CAD for Thursday, December 15, 2016

USD/CAD December 15 at 8:50 EST

Open: 1.3285 High: 1.3363 Low: 1.3270 Close: 1.3357

USD/CAD Technical

S1 S2 S1 R1 R2 R3
1.3026 1.3120 1.3253 1.3371 1.3457 1.3589
  • USD/CAD showed limited movement in the Asian session. The pair has posted gains in the European and North American trade
  • 1.3253 is providing support
  • 1.3371 is weak resistance line and could break in the North American session

Further levels in both directions:

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

OANDA’s Open Positions Ratio

USD/CAD ratio is almost unchanged in the Thursday session. Currently, long positions have a majority (57%), indicative of trader bias towards USD/CAD continuing to move higher.

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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.