USD/CAD – Canadian Dollar Edges Lower, Markets Eye Fed Policymakers

The Canadian dollar has posted slight losses in the Tuesday session. Currently, USD/CAD is trading at 1.2537, up 0.15% on the day. On the release front, there are no Canadian releases, and no major US indicators. On Wednesday, the focus will be on US housing data, with the release of Housing Starts and Building Permits.

The NAFTA pact is under attack from US President Trump, and that could spell trouble for the Canadian economy. Trump has declared that NAFTA has been terrible for the US and has vowed to renegotiate the deal. Negotiations between Canada, the US and Mexico over re-negotiating NAFTA have not gone well, and Trump has previously declared that he could scrap the deal and simply enter a new trade agreement with Canada. One of the key US demands that Canada is not happy with is a “sunset clause” which would require new negotiations every five years. The lack of progress in the talks has sent the Mexican peso lower, and if the unpredictable Trump decides to scrap the agreement, the Canadian dollar could lose up to 10 percent of its value, according to the Bank of Canada. The Bank surprised analysts with a rate hike in September, and the odds of another raise in rates is pegged at just 20 percent. BoC Governor Stephen Poloz has expressed concerns about the risks of the scrapping of NAFTA, and BoC policymakers would prefer not to raise rates until the NAFTA negotiations are settled. However, if the Federal Reserve raises rates in December and the BoC does not follow suit, the Canadian dollar would likely lose ground.

With the Federal Reserve dropping strong hints that it will raise rates in December, the odds of a December hike are currently at a sizzling 91 percent. Just one month ago, the odds were 50-50 that the Fed would raise rates at the December meeting. Low inflation levels have been a key reason that the Fed has been reluctant to raise rates, but Fed Chair Janet Yellen and other policymakers have expressed optimism that inflation will move closer towards the Fed’s inflation target of 2 percent. The markets will be looking for some clues as FOMC member Patrick Harker speaks on Tuesday, followed by speeches from FOMC members William Dudley and Robert Kaplan on Wednesday.

Oil prices continue to move higher, as fighting continues between Iraq and Kurdish forces. On Tuesday, the Iraqi army occupied the city of Kirkuk, which is located in an oil-rich region. Relations between Iraq and Kurdistan have deteriorated since the Kurds voted for independence in September, and the Iraqi offensive could disrupt oil shipments and raise oil prices. Higher crude prices could boost the Canadian dollar, as the currency is linked to movement in oil prices.

Oil Higher on Iraq Disruption Following Military Intervention

USD/CAD Fundamentals

Tuesday (October 17)

• 8:30 US Import Prices. Estimate 0.6%
• 9:15 US Capacity Utilization Rate. Estimate 76.2%
• 9:15 US Industrial Production. Estimate 0.3%
• 10:00 US NAHB Housing Market Index. Estimate 64
• 13:00 US FOMC Member Patrick Harker Speaks
• Tentative – US Federal Budget Balance. Estimate -0.9B
• 16:00 US TIC Long-Term Purchases. Estimate 14.3B

Wednesday (October 18)

• 8:00 US FOMC Member William Dudley Speaks
• 8:00 US FOMC Robert Kaplan Speaks
• 8:30 US Building Permits. Estimate 1.25M
• 8:30 Canadian Manufacturing Sales. Estimate -0.1%
• 8:30 US Housing Starts. Estimate 1.18M
• 10:30 US Crude Oil Inventories. Estimate -4.7M
• 14:00 US Beige Book
• 15:30 BoC Senior Deputy Governor Carolyn Wilkins Speaks

*All release times are GMT

*Key events are in bold

USD/CAD for Tuesday, October 17, 2017

USD/CAD Tuesday, October 17 at 7:45 EDT

Open: 1.2519 High: 1.2553 Low: 1.2513 Close: 1.2537

USD/CAD Technical

USD/CAD has posted small gains in the Asian and European sessions

• 1.2459 is providing support
• 1.2598 is the next resistance line
• Current range: 1.2459 to 1.2598

Further levels in both directions:

• Below: 1.2459, 1.2302 and 1.2218
• Above: 1.2598, 1.2701 and 1.2778

OANDA’s Open Positions Ratio

USD/CAD ratio is showing slight gains towards long positions. Currently, long positions have a majority (58%), indicative of trader bias towards USD/CAD continuing to move to higher ground.

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.