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USD/CAD – Canadian Dollar Under Pressure Ahead of Canadian CPI, Retail Sales

The Canadian dollar continues to drop against its US counterpart. On Thursday, USD/CAD has edged higher as it trades at 1.3450. On the release front, there are a host of key indicators out of the US and Canada. In the US, the highlight of the day is Final GDP. We’ll also get a look at Core Durable Goods Orders and unemployment claims. Canada will release CPI and retail sales reports. The action continues on Friday, as Canada releases GDP while the US publishes New Home Sales and UoM Consumer Sentiment.

The US economy continues to expand in impressive fashion, as underscored by strong GDP forecasts for the third quarter. Preliminary GDP came in at 3.2%, beating the forecast of 3.0%. Final GDP is expected to be even stronger, with an estimate of 3.3%. If the indicator matches or beats this rosy prediction, the US dollar could respond with gains. As for the Canadian dollar, it posted strong gains in early December, piggybacking on surging oil prices. However, the currency reversed directions after the Federal Reserve raised rate last week, wiping out those recent gains. USD/CAD is currently at 4-week highs, and the rally could continue if this week’s key Canadian indicators fail to meet expectations.

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.

Now that the Fed has finally pressed the rate trigger, 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.

USD/CAD Fundamentals

Thursday (December 22)

Friday (December 23)

*All release times are EST

*Key events are in bold

USD/CAD for Thursday, December 22, 2016

USD/CAD December 22 at 6:50 EST

Open: 1.3432 High: 1.3464 Low: 1.3416 Close: 1.3462

USD/CAD Technical

S1 S2 S1 R1 R2 R3
1.3253 1.3371 1.3457 1.3589 1.3759 1.3889

Further levels in both directions:

OANDA’s Open Positions Ratio

USD/CAD ratio is showing little movement in the Thursday session. Currently, short positions have a slim majority (52%), indicative of a very slight trader bias towards USD/CAD continuing to move upwards.

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 [4]

Market Analyst at OANDA [5]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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