USD/CAD – Canadian dollar rally continues as U.S-China talks renew optimism, BoC rate hike next?

The Canadian dollar started the week with strong gains, as the impressive rally continues. USD/CAD has now posted losses for four straight days, losing 2.4% in that period. In the Tuesday session, the pair is trading at 1.3293, down 0.04% on the day. It’s a quiet day on the release front. Canada’s trade deficit widened to C$2.1 billion, matching the forecast. In the U.S., JOLTS Job Openings was unexpectedly soft, dropping to 6.83 million. This marked a four-month low. On Wednesday, the Bank of Canada is expected to hike rates and Federal Reserve releases the minutes of its December meeting, when it raised rates.

The U.S. dollar was broadly lower on Monday, as fallout from Fed Chair Powell’s recent remarks continues to weigh on the greenback. Powell engaged in some damage control, seeking to reassure the financial markets that he was listening to market concerns over additional rate hikes. The markets had given Powell a thumbs-down after the Fed’s December rate statement was on the hawkish side, and stocks plummeted. Powell was dovish in his remarks, saying that he was aware of the risks of a slowdown in the U.S. economy and that the Fed would be patient in its policy decisions.

The Bank of Canada will be in the spotlight on Wednesday, with policymakers expected to raise interest rates to an even 2.0%. This would mark the highest interest rates we’ve seen since 2008 and could give the Canadian dollar a small boost. A rate hike would indicate a vote of confidence in the economy by the Bank, and investors will be dissecting the rate statement, looking for clues with regard to monetary policy in 2019.

Risk appetite is higher, as investors are pinning hopes on the outcome of this week’s meeting between U.S and Chinese officials. The teams are holding two days of talks, in an effort to reduce global trade tensions. The ongoing trade war has rocked equity markets, which had their worst year in 2018 since the 2008 financial crisis. The world’s two largest economies have engaged in tit-for-tat tariffs, and President Trump has threatened to impose additional tariffs on March 1 if the sides don’t reach a deal. If this set of talks points to progress, traders can expect risk appetite to improve, which would be bullish for the Canadian dollar.

The Powell “Put” continues to resonate

A bit of the feel-good factor has temporarily abated

USD/CAD Fundamentals

Tuesday (January 8)

• 6:00 US NFIB Small Business Index. Estimate 103.1
• 8:30 Canadian Trade Balance. Estimate -1.9B. Actual -1.9B
  
• 10:00 US JOLTS Job Openings. Estimate 7.07M. Actual 6.83M
  
• 15:00 US Consumer Credit. Estimate 17.3B

Wednesday (January 9)

• 14:00 US FOMC Meeting Minutes

*All release times are EST

*Key events are in bold

USD/CAD for Tuesday, January 8, 2019

USD/CAD, January 8 at 10:05 EST

Open: 1.3298 High: 1.3303 Low: 1.3268 Close: 1.3294

USD/CAD Technical

USD/CAD edged higher in the Asian session and is flat in European trade

• 1.3290 was tested earlier in support. It is a weak line
• 1.3383 is the next resistance line
• Current range: 1.3290 to 1.3383

Further levels in both directions:

• Below: 1.3290, 1.3200 and 1.3125
• Above: 1.3383, 1.3461, 1.3552 and 1.3696

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