USDCAD news - page 50
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Trading The BoC - Views From 10 Major Banks
Morgan Stanley: On Hold: CAD Dips A Buy Vs Other Commodity Currencies
We expect CAD to outperform other commodity currencies. CAD is not as vulnerable as MXN to trade protectionism given a prior free trade agreement which would take effect if the US backs out of NAFTA, though this remains a risk. However, a better US economic outlook (from other policies like fiscal stimulus) should benefit Canada. However, this week's BoC meeting is a key risk; the markets are pricing in a relatively hawkish path for the Bank which they may pushback on given the mixed data overall in Canada. Recent trade data and the 4Q business outlook survey were better than expected, but core inflation has decelerated and growth remains challenged. At the end of the day, we expect the BoC to adopt a neutral tone and emphasize a wait and see approach. But we do see dips in CAD from a more dovish BoC, and we see them as opportunities to buy.
CIBC: On Hold: USD/CAD Oversold.
In Canada, the BoC will leave interest rates on hold and likely also make few changes to its economic outlook. Even though recent readings on trade and employment have been encouraging, they were only enough to bring our tracking forecast for Q4 GDP back to the Bank’s 1.5%. With few firms reporting “concrete effects” from the US elections on their sales expectations, the Bank’s Business Outlook survey did little to clarify their view of what President-elect Trump will mean for Canada...We argued yesterday that the BoC are unlikely be unconcerned by the current value of the currency. However, should we decisively breach and close below 1.30, we have not closed below the level since early September, this would risk the topic of the currency moving up the agenda in the BoC’s MPR press briefing tomorrow. While investors may continue to moderate USD long positions into the Presidential inauguration, USD CAD looks increasingly oversold near recent 1.3030 lows.
BNPP: On Hold: Staying Long USD/CAD via Options.
The market is currently pricing in unchanged policy by the Bank of Canada (BoC) at its meeting on Wednesday. Even with policy unchanged, we expect continued policy divergence between the BoC and the Federal Reserve to drive USDCAD up. Meanwhile, we see limited room for oil prices to rise further although we no longer expect a retreat below WTI USD 50bbl. We are positioned for a modest rise in USDCAD via a USDCAD 1.34/1.36 call spread which expires on 7 March.
Credit Agricole: On Hold: Roughly Balanced, Neutral For USD/CAD.
The Bank of Canada will have its first policy announcement for 2017 on Wednesday, accompanied by the quarterly Monetary Policy Report (MPR). The BoC surprised in early December by omitting to describe the balance of risks to the economy but they are likely to do so next week on the basis of the new staff forecasts. The main question is whether a stronger outlook for US growth will meaningfully factor into the new forecasts, thus finally putting a lid on any near-term easing prospects and bringing forward the date when the BoC may start tightening policy. As we saw in the latest business outlook survey some Canadian firms are already feeling more optimistic about growth and this may be reflected in a slight upgrade to the BoC’s GDP forecasts. However, the negative output gap is likely to persist into 2018, suggesting little immediate impact on inflation. Furthermore, there is the flip side to the changing US policy landscape due to rising risk of US trade protectionism, which could hurt Canadian exports. Last but not least, growth expectations could be tempered due to tightening financial conditions via higher interest rates as the BoC already highlighted in December. The bottom line is that we expect the BoC to bring back the ‘roughly balanced’ assessment of the balance of risks next week, suggesting no policy moves are likely in 2017. A more substantial update to the outlook is likely at the time of the April MPR once some of the policy action of the new US administration is in place. We expect the BoC to have a fairly neutral impact on USD/CAD, which should remain primarily driven by the broader USD trends.
RBS: On Hold: Fade Any CAD Hawkish Reaction.
We expect the Bank of Canada (BoC) to leave the benchmark overnight rate steady at 0.5% at the January meeting. We have long felt that the risks of outright easing in Canada are underpriced. While we still feel that market pricing of a 50% probability of a Bank of Canada rate hike in 2017 is offside, the most recent economic indicators relating to trade and business investment were stronger than expected, and for now are consistent with the Bank of Canada maintaining its current stance. The January meeting will be accompanied by a new Monetary Policy Report and a press conference by BoC Governor Poloz. With the market pricing in essentially no change in rates already, any market reaction will likely be due to any change in the tone of the report. We anticipate slightly more constructive language on the global growth picture and on trade and investment, given the latest data. But, as the Bank did in the December statement, we expect the BoC statement to lean against the increase in short-term interest rates that has come alongside a similar tightening in the US and may reference softer inflation data, still persistent labor market slack, and new macro prudential measures. As a result, the message may come off as mixed. We would prefer to fade any hawkish reaction given our still bearish CAD view.
RBC: On Hold: No Surprise From BoC, CAD Positive.
We are not expecting any major surprises from the BoC (Wed), with rates unchanged along with most key elements of their economic forecasts. Markets will focus on the press conference and the characterization of the risks around the forecasts. Our economists look for the Bank to highlight the large degree of slack still in the economy, pushing against the idea of higher rates for now. But any sign of optimism from the BoC would reinforce the CAD-positive mood from recent upside data surprises.
TD: BoC On Hold: Risk-Reward Attractive For New Longs.
The focus this week turns to the BoC meeting on Wednesday. The bank is likely to keep the policy rate unchanged but concerns about weaker inflation could offset constructive news on the growth front. A reaffirmation of the BoC’s cautious tone is unlikely to offer much support to CAD, especially since OIS rates have priced in a modest chance of a hike this year. We demur and think the market is mispricing the chance of a hike this year. Instead, we expect the BoC to hold fire in 2017 and 2018 and lean more towards a cut than a hike over the next year. At the same time, we also note that USDCAD looks cheap to our high frequency fair value model. The pair pierced below the 2SD threshold for the first time since June 2016, increasing the scope for a bounce in the near-term. The USD squeeze could extend the valuation gap in USDCAD but these levels offer good risk/reward for new longs.
Barclays: On Hold: We Stay Structurally Bearish On CAD.
CAD started 2017 with a positive tone, as the December employment report (+53.7k), merchandise trade (first trade surplus since 2014) and PMIs surprised to the upside following a string of poor data into year-end, suggesting a slightly better Q4 16. The loonie has been supported by a shift in market expectations, as a more positive outlook for the US and stable oil prices are tailwinds for the Canadian economy. Although we and the market expect the BoC to stay on the sidelines this year, pricing suggests a shift from easing as the most likely next move to a rate hike as most probable in 2018 (Figure 8). We are bearish on the CAD, however, as the economy continues to adjust to the oil shock, amid disappointing activity, low inflation and diverging monetary policy, coupled with uncertainty regarding economic policy in the US, including a possible renegotiation to NAFTA and restrictions to trade.
Goldman Sachs: On Hold: With A Dovish Tilt.
Data since the October Monetary Policy Report have been better than the BoC expected, and business sentiment has improved. We and consensus therefore expect the Bank to remain on hold, while emphasizing the significant slack remaining in the economy.
NAB: On Hold: BoC Happy To Stand Pat.
The BoC meets on Wednesday this week ahead of Trump’s inauguration speech on Friday. An improved growth outlook for the US should be beneficial for Canada’s exports, meanwhile the stabilisation in oil prices should help business investment and government spending should also contribute to growth. Hence the BoC should be happy to stand pat for now especially given uncertainties surrounding Trump’s trade policies.
source
Bank of Canada leaves rates unchanged at 0.50%, as expected. Hikes growth forecast
Bank of Canada holds rates unchanged, as entirely expected
Full text
Highlights from the statement:
The BOC shifted away from dovish to neutral last month and that has continued.
A bit of jawboning in there. The export forecast was cut to 0.7 p of GDP from 0.8 points.
Changes in forecasts:
On growth:
USD/CAD: Staying Bullish & Long Post-BoC Targeting 1.37 In 2-Month
The BoC policy announcement was broadly in line with expectations. Growth projections for 2016-17 were revised slightly higher but the statement brought back the October assessment that the risks to the outlook were “roughly balanced” and that uncertainty was high. The bank had incorporated some US fiscal stimulus into its projections but its positive impact on growth is offset by higher Canadian long-term rates and firm CAD TWI. The statement and the MPR also noted that Canadian spare capacity was materially higher than in the US and that the output gap is not expected to close until mid-2018.
All-in-all this is consistent with our view of steady policy in 2018. The press-conference by Governor Poloz turned out to be another source of FX volatility however. USD/CAD surged from 1.3060 to above 1.32 as Governor Poloz said, in response to a question on whether policy easing was discussed, that a rate cut was “on the table”. The Governor later clarified that there were no reasons for easing for the moment but the damage was done.
We read this more as another communication misstep than a new policy signal but to the extent that rates markets had priced in a 30% chance of a hike by year-end, some flattening of the Canadian BA curve is probably in order.
We remain bullish on USD/CAD as we see the combination of steady Canadian and higher US front-end rates pushing the pair up to 1.40 by mid-2017
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USD/CAD Extends Higher In BoC Inspired Rally
The Loonie dropped sharply following remarks from BoC Governor’s Poloz that a rate cut could still be considered on Wednesday in the press conference after the rate statement. Bearish Loonie sentiment has remained intact, albeit at a slower pace on Thursday.
The Canadian Dollar will close the day out leading the decliner’s list among the major currencies for a second consecutive session. The Loonie has lagged while the rest of its commodity counterparts have posted the largest gains among the major currencies.
The rise in USD/CAD attributed to several technical developments as Wednesday’s single day gain served to erase losses from the prior week. The pair also regained the 200-period daily moving average and has scaled above an important confluence of support found at 1.3188. A horizontal level at 1.3317 is now in focus and while the pair scaled the level on an intraday basis, late day selling shows the pair falling back below the level. The horizontal level had previously held the pair lower in September 2015 as seen on a weekly chart.
The continuation higher after sharp gains on Wednesday indicates that the bank meeting caught market participants off guard. The Bank of Canada had indicated at their October meeting that they had come very close to easing policy but decided against it. The December meeting carried a much more neutral tone and combined with tightening prospects in the United States, there were expectations for a shift in policy in 2017. the markets were looking for about a 50% probability of the BoC raising rates this year, as indicated by the futures market. Also attributing to the rise in the exchange rate over the past two sessions has been the shift in position since the December BoC meeting. The Loonie had been held net short while the latest COT report indicated sentiment to be relatively neutral with a marginal $600 million net short among non-commercials.
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Canada December CPI 1.5% y/y vs 1.7% expected
Core measures:
USD/CAD forecast for the week of January 23, 2017, Technical Analysis
The USD/CAD pair fell initially during the week, but found enough support at the 1.30 level to turn things around and break back above the previous uptrend line. Because of this, I feel that the market is going to reach towards the 1.35 handle above, and then eventually break above there. If oil markets start to roll over again, it’s likely to continue to push this market much higher. Currently, I have no interest in selling this pair longer term. I believe that the 1.30 level underneath will be the “floor.”
USD/CAD Weekly Forecast January 23-27
The Loonie dropped sharply in the past week, driven by comments from Bank of Canada’s Governor Poloz. The Canadian Dollar posted the largest losses among its major counterparts by a significant margin and remains at risk as the BoC outlined concerns related to a more protectionist United States led by President Donald Trump.
The main concern that Poloz expressed was in regards to US trade, stating that any change of trade infrastructure would have complicated effects for Canada. The Bank of Canada left open the option to reduce the interest rate further in the event of a potential fallout as a result of trade agreement changes from the Trump administration.
Similar to the October meeting, the monetary policy stance took markets by surprise as the futures markets were pricing in a roughly 50% chance of a rate increase this year. The single day gain in USD/CAD served to erase losses from the prior week and accompanied several other bullish technical developments. USD/CAD had dipped below its 200-period daily moving average as well as several notable support levels ahead of the meeting. The recovery inspired by the BoC has set a bullish tone for the pair and repositioning in the markets will tend to keep USD/CAD well supported over the near-term.
The latest market positioning as indicated by the COT report showed a relatively neutral sentiment towards the Canadian Dollar. In the week to January 17, non-commercials were reported to hold the Loonie net short by $418 million. As the report reflects data ahead of the BoC meeting, updated data will likely differ substantially as a result of the volatile decline in the Loonie.
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Canada November wholesale trade sales +0.2% vs +0.5% expected
USD/CAD Weighed By Weak Dollar
USD/CAD turned lower on Monday on the back of renewed bearish pressure in the US Dollar. The currency pair has printed a bearish evening star pattern on a daily chart as a result of the decline, putting the pair at risk of a further correction.
USD/CAD recovered sharply last week when comments from BoC Governor Poloz sparked selling pressure in the Loonie. The Governor stated that a rate cut was not off the table, citing concerns surrounding trade agreements with the United States. The pair struggled at 1.3317 resistance in the second half of the week, with a late day pullback on Friday leading to a doji print on the daily chart.
The follow through lower today has served to print a morning star pattern while a breach of support adds to the near-term bearish case. Horizontal support at 1.3260 had previously acted as resistance in March and support in November, but a late day decline on Monday has resulted in a close below the level.
USD/CAD retreated despite a decline in oil prices. WTI crude oil prices declined in early trading and despite a recovery in the North American session, the commodity remains in the red for the day, failing to follow through on Friday’s swift move higher.
The US Dollar index declined to the lowest level seen since early December. The index turned lower shortly ahead of the Presidential inauguration last week and signaled a continuation early in the day with a gap lower to start out the new week. Support from last week’s lows provide some temporary reprieve in early European trading, but downside momentum picked up following a break lower in the early North American session.
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USD/CAD Threatens Break Of 200 DMA
USD/CAD remained under pressure on Wednesday with a further drop to take the exchange rate below the 200-period daily moving average on an intraday basis. The bulk of last week’s BoC inspired rally has been erased and a daily close below the important moving average can trigger a continuation in the downtrend seen since late December.
The Canadian Dollar strengthened on Tuesday after President Trump announced his intentions to negotiate a deal to start construction on the Keystone pipeline. The pipeline was previously voted down under the Obama administration in 2015 with concerns stemming from environmental impacts as well objections from Native Americans concerned about their water supply. The project would stand to be a positive development for the Canadian economy and the Loonie has rallied as a result.
The drop in the Canadian Dollar last week was triggered by a dovish stance from the Bank of Canada as uncertainties over renegotiating trade agreements prompted the central bank to leave easing measures on the table. This week’s developments suggest the Canadian economy may benefit under the Trump administration. Further adding to the bullish case for the Loonie were comments from Trump’s senior business advisor stating that the NAFTA renegotiation was more focused on trade with Mexico as opposed to Canada.
The decline in USD/CAD on Wednesday was further boosted by a declining Dollar and a rise in oil prices. The trade-weighted US Dollar index (DXY) fell under pressure in the European session to briefly dip below the 100.00 handle once again. The drop was not sustained and a prompt recovery has taken the index back above the psychological handle to limit losses on the day thus far.
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