USD/CAD – Canadian Dollar Edges Lower as Markets Eye Fed Rate Statement

USD/CAD is slightly higher in the Wednesday session. Early in the North American session, the pair is trading at 1.3070. On the release front, ADP Nonfarm Employment Change sparkled with a gain of 246 thousand, crushing the estimate of 165 thousand. Later in the day, the US releases the ISM Manufacturing PMI, which is expected to rise to 55.0. Later in the day, the Federal Reserve issues a rate statement and set the benchmark rate, which is expected to remain pegged at 0.50%. Canada will release RBC Manufacturing PMI. On Thursday, the US will publish unemployment claims.

Canada released its monthly GDP report on Tuesday. The economy expanded 0.4% in November, rebounding from a 0.3% decline in October. This figure beat the forecast of 0.3%, and the Canadian dollar responded with gains. However, there could be trouble ahead for the Canadian economy. A report by the National Bank Financial Markets says that if Donald Trump’s administration implements protectionist policies, Canada’s GDP could drop as much as 1.5 percent. Trump has declared he will renegotiate the NAFTA trade agreement, which could have negative repercussions for Canadian exports.

All eyes are on the Federal Reserve, which will release a policy statement later on Wednesday. After a historic quarter-point raise in December, which pushed rates to 0.50 percent, the Fed is expected to remain on the sidelines in its first release of 2017. What happens next? Just a few weeks ago, Fed officials were talking about a series of rates hikes in 2017 in response to a strong US economy (sound familiar? Please rewind to January 2016 for an identical message). However, after just 10 days on the job, President Trump has proven to be as unpredictable and controversial as ever. Trump has not provided any details about his economic blueprint for the country, but he has raised the rhetoric about “America first” and has already picked a fight with Mexico over a border wall and his threat to renegotiate the NAFTA trade agreement. After hinting at gradual rate increases, the Fed will likely change gears and adopt a wait-and-see attitude, watching what bills Trump gets through Congress and how the economy responds. If economic growth remains strong, a rate hike in the first half of 2017 will have to be seriously considered by the Fed. The markets have priced in a rate hike by June at 66 percent.

Canadian GDP Rises 0.4% in November

Fed Expected to Hold as Trump Comments Sink Dollar

USD/CAD Fundamentals

Wednesday (February 1)

• 8:15 US ADP Nonfarm Employment Change. Estimate 165K. Actual 246K
• 9:30 Canadian RBC Manufacturing PMI. Estimate 51.8
• 9:45 US Final Manufacturing PMI. Estimate 55.1
• 10:00 US ISM Manufacturing PMI. Estimate 55.0
• 10:00 US Construction Spending. Estimate 0.2%
• 10:00 US ISM Manufacturing Prices. Estimate 66.0
• 10:30 US Crude Oil Inventories. Estimate 2.6M
• All Day – US Total Vehicle Sales. Estimate 17.9M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rates. Estimate <0.75%

Upcoming Key Releases

Thursday (February 2)

• 8:30 US Unemployment Claims. Estimate 251K

*All release times are GMT

*Key events are in bold

USD/CAD for Wednesday, February 1, 2017

USD/CAD February 1 at 8:30 EST

Open: 1.3038 High: 1.3093 Low: 1.3038 Close: 1.3075

USD/CAD Technical

• USD/CAD posted slight gains in the Asian session but retracted in European trade
• 1.3003 is providing support
• 1.3120 is the next resistance line

Further levels in both directions:

• Below: 1.3003, 1.2922 and 1.2815
• Above: 1.3120, 1.3253, 1.3371 and 1.3457
• Current range: 1.3003 to 1.3120

OANDA’s Open Positions Ratio

USD/CAD ratio is showing strong movement towards short positions. Currently, long positions command a majority (54%), indicative of trader bias towards USD/CAD continuing to move upwards.

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