USD/CAD Surges After China Yuan Depreciation

The USD/CAD has gained 0.934 in the last 24 hours. The USD lost ground versus the Canadian dollar on Monday as oil staged a surprising comeback gaining more than 2 percent. The CAD’s appreciation was to be short-lived as China announced a devaluation of the Yuan which boosted the USD against commodity currencies. The USD/CAD has managed to trade below the 1.30 price level but is now trading at 1.3133 after the Chinese Yuan announcement and the subsequent fall in the price of oil.

Canadian elections will be held in October 19, 2015 and the economy tops the list in the mind of voters. After a weak first quarter that showed the Canadian economy contracted all eyes will be on the latest release on monthly GDP data to confirm if the country is in a technical recession. Exports came roaring back boosted by a weak loonie in the last trade balance release. Conservative politicians will keep their fingers crossed that the actions of the Bank of Canada which cut interest rates in January and July were enough to avoid a recession. The Canadian benchmark interest rate now stands at 0.50 percent.

The Federal Reserve in the U.S. has made no secret on its intention to start a rate hike cycle this year. Macro headwinds have delayed the important first rate hike that clearly announce the end of a global low rate environment. The combination of a strong USD and low commodities have depreciated the loonie. The Bank of Canada is trying to boost exports via a weaker currency, but as today’s announcement from China they are not alone.

There is limited data releases out of Canada this week with manufacturing sales on Friday the lone major indicator. The market will be focused on the U.S. data, in particular retail sales as the September rate hike can be validated by strong consumer demand. China’s central bank decision and the overall macro environment will weigh on the Fed’s rate announcement, but second only to the growth of the economy.

USD/CAD events to watch this week:

Thursday, August 13
8:30am USD Core Retail Sales m/m
8:30am USD Unemployment Claims

Friday, August 14
8:30am CAD Manufacturing Sales m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza