USD/CAD – Canadian Dollar Shrugs Off Strong Canadian Housing Data

The Canadian dollar continues to have an uneventful week. In the North American session, USD/CAD is trading at the 1.27 line, up 0.17% on the day. On the release front, the focus is on Canadian housing numbers. Housing Starts jumped to 222 thousand, well above the estimate of 204 thousand. This marked a 4-month high. Building Permits surprised with a 2.5% gain, crushing the estimate of -1.8%. In the US, Preliminary Nonfarm Productivity came in at 0.9% and Preliminary Unit Labor Costs gained 0.6%, as both indicators missed expectations.

The war of words between North Korea and the US has escalated, and the rising political tensions have sent global stock markets lower. Pyongyang has reacted furiously to new sanctions imposed by Washington, and has threatened to attack Guam, which is a major US military base. President Donald Trump is taking a tough line on North Korea, and has promised that any aggression from North Korea will be met with “fire and fury.” With Trump and North Korean President Kim Jong-un on a possible collision course, risk appetite has decreased, as nervous investors have snapped up gold, a traditional safe-haven asset. If the crisis worsens, minor currencies like the Canadian dollar could lose ground.

In contrast to the uncertainty over the Fed’s monetary plans, the Bank of Canada is leaning towards further tightening, possibly before the end of 2017. The bank raised interest rates in July and the odds of a rate increase in October are at 78 percent. In May, annualized GDP was up 4.6%, and the labor market continues to produce jobs. The increase in oil prices has revived the economy has also pushed the Canadian dollar higher. Like its southern neighbor, inflation remains subdued, despite a stronger economy and improving labor market. The lack of inflation could cause the Federal Reserve to abandon plans for another rate hike this year, and this could also lead to the BoC deciding to delay a rate hike until inflation moves higher.

Will the US dollar pull out of its slump? Paralysis in Washington is weighing on the greenback, as Donald Trump’s antics and inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve’s monetary policy remains unclear. Earlier this year the Federal Reserve strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to “transient” factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 34%, compared to 43% a week ago.

USD/CAD Fundamentals

Wednesday (August 9)

• 8:15 Canadian Housing Starts. Estimate 204K. Actual 222K
• 8:30 Canadian Building Permits. Estimate -1.8%. Actual +2.5%
• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.7%. Actual 0.9%
• 8:30 US Preliminary Unit Labor Costs. Estimate 1.1%. Actual 0.6%
• 10:00 US Final Wholesale Inventories. Estimate 0.6%
• 10:30 US Crude Oil Inventories. Estimate -2.6M
• 13:01 US 10-y Bond Auction

Thursday (August 10)

• 8:30 US PPI. Estimate 0.1%
• 8:30 US Unemployment Claims. Estimate 240K

*All release times are GMT

*Key events are in bold

USD/CAD for Wednesday, August 9, 2017

USD/CAD Wednesday, August 9 at 8:40 EDT

Open: 1.2667 High: 1.2708 Low: 1.2663 Close: 1.2689

USD/CAD Technical

USD/CAD has showed little movement in the Asian and European sessions

• 1.2562 is providing strong support
• 1.2701 remains a weak resistance line and could break in the North American session
• Current range: 1.2562 to 1.2701

Further levels in both directions:

• Below: 1.2562, 1.2445 and 1.2302
• Above: 1.2701, 1.2815 and 1.2943

OANDA’s Open Positions Ratio

USD/CAD ratio continues to show little movement this week. Currently, long positions have a strong majority (77%), indicative of 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.