The Canadian dollar remains close to the 1.34 line and is showing little movement in the Wednesday session. On the release front, Canada will release Wholesale Sales, with the estimate standing at 0.3%. In the US, today’s highlight is Existing Home Sales. The indicator is projected to drop to 5.52 million. Thursday promises to be busy, as the US releases three key events – Core Durable Goods Orders, Final GDP and unemployment claims.
The US dollar has enjoyed broad gains since the Federal Reserve raised rates last week and the Canadian currency has not been immune. The Canadian dollar has lost 2 percent since the Fed announcement. 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 last week.
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.
Wednesday (December 21)
- 8:30 Canadian Wholesale Sales. Estimate 0.3%
- 10:00 US Existing Home Sales. Estimate 5.52M
- 10:30 US Crude Oil Inventories. Estimate -2.4M
Thursday (December 22)
- 8:30 US Core Durable Goods Orders. Estimate 0.2%
- 8:30 US Final GDP. Estimate 3.3%
- 8:30 US Unemployment Claims. Estimate 255K
*All release times are EST
*Key events are in bold
USD/CAD for Wednesday, December 21, 2016
USD/CAD December 20 at 6:45 EST
Open: 1.3370 High: 1.3390 Low: 1.3355 Close: 1.3384
- USD/CAD has been flat in the Asian and European sessions
- 1.3371 remains fluid. Currently, it is providing weak support
- 1.3457 is the next 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 continues to show gains in short positions. Currently, long and short positions are almost evenly split, indicative of a lack of trader bias as to what direction USD/CAD will take next.