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USDCAD Sinks on Hawkish BoC

Categories: AUD, CAD, CHF, EUR, GBP, Markets, News, NZD, USD

The Canadian dollar outperformed all other G10 currencies against the US dollar, overnight.  USDCAD dropped dramatically just after lunch-time yesterday when Bank of Canada Senior Deputy Governor Carolyn Wilkens signaled a shift in the BoC’s interest rate policy.  When talking about improvements in the domestic economy, she said

“If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly. You don’t want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.”

FX traders heard “Canadian interest rates may be going higher sooner than you think.”

USDCAD tanked.  The uptrend line from February was shattered on the move below 1.3400 followed by a break of the 100-day moving average at 1.3377 and the 200-day moving average at 1.3330.

The losses were extended overnight until USDCAD found a bottom at 1.3255.

The USDCAD collapse occurred even as WTI oil prices were well below last week’s $6.85 low, suggesting that the ”stretched” speculative long USDCAD positions, got squeezed.

Overnight, USDJPY inched higher inside a 109.83-110.26 range while traders awaited the FOMC statement on Wednesday.

Elsewhere German Finance Minister Schaueble called for an end to “ultra-loose“  monetary policy, in part, to help ECB President Mario Draghi’s doveish stance. German ZEW index showed an increase in the current situation reading but a dip in economic sentiment.  The ZEW survey for the Eurozone increased to 37.7 from 35.1 previously.  EURUSD traders did not care.  EURUSD was steady inside a 1.1186-1.1223 range.

GBPUSD rallied from 1.2643 to 1.2723 in early New York trading supported by a jump in inflation.  UK CPI rose 2.9% in May, y/y vs. a forecast for a 2.7& rise.  The news helped erase some of the stink from Prime Minister Theresa May’s election fiasco.

Oil prices appear to be consolidating last weeks’ losses and feeling a bit of love from news that Saudi Arabia may make deeper production cuts.  WTI drifted higher inside a $46.07-$46.38 range.

The FX majors (EUR, JPY, GBP) are likely to stay within their overnight ranges with traders counting down to Wednesday afternoon’s FOMC statement and press conference.  This morning’s US data, Producer Prices won’t have any impact on trading.  However, the end of the day API report will be eagerly waited for more evidence of US crude inventories declining.

There isn’t any Canadian data so USDCAD traders will keep an eye on oil prices and technicals.  Yesterday’s USDCAD plunged flipped the technicals to bearish and caught the market long USDCAD.  That suggests that there will be plenty of USDCAD sellers on a topside bounce, limiting gains


Overnight Ranges

13-Jun-17 Open-6 am EDT High Low
USDCAD 1.3269 1.3323 1.3255
EURUSD 1.1207 1.1223 1.1186
USDJPY 110.09 110.26 109.83
GBPUSD 1.2707 1.2716 1.2643
USDCHF 0.9676 0.9699 0.9663
AUDUSD 0.7545 0.7563 0.7540
NZDUSD 0.7224 0.7225 0.7195
USDMXN 18.1265 18.1586 18.1226
WTI   46.21 46.38 46.07

USDCAD Technical outlook:

The USDCAD technical’s are bearish.  The break of the uptrend line from February, combined with the move below the 100 and 200 day moving averages and the breach of 1.3280 (61.8% Fibonacci retracement of February-May range, imply further losses to 1.3162.

The intraday technicals are bearish but the steepness of the move and tomorrows FOMC meeting suggest a period of consolidation may be in order.  For today, USDCAD support is at 1.3230, 1.3190 and 1.3160.  Resistance is at 1.3290 and 1.3330

Today’s Range 1.3230-1.3330

Chart: USDCAD 4 hour



Agility Forex Author: Agility Forex

Agility Forex is a Canadian cross-border payment specialist. They are Canadian owned, operated out of Vancouver and are registered with Fintrac, the Canadian government agency that oversees the money transfer industry. They specialize in all things Canadian Dollar and aim to provide the best service and best pricing on all Loonie cross rates. Visit Agility Forex.

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