USDCAD – Canadian Dollar Edges Higher, Investors Eye Powell Testimony

The Canadian dollar has edged higher in the Thursday session. Currently, USD/CAD is trading at 1.2858, up 0.20% on the day. The struggling Canadian currency has lost 1.7% this week, and is at its lowest level since late December. On the release front, Canada releases Current Account, with the deficit expected to narrow to C$17.8 billion. In the US, there are a host of key events, led by unemployment claims and personal spending. As well, Fed chair Jerome Powell testifies before the Senate Banking Committee. On Friday, Canada releases GDP, with the markets braced for a negligible gain of 0.1%. The US publishes UoM Consumer Sentiment.

Jerome Powell has barely settled in his new office, but it’s been an eventful few weeks for the new Federal Reserve chair. Powell was greeted by a sharp correction in US stock markets, as investors headed for the hills on fears that the Fed might accelerate its pace of rate hikes if inflation moves higher. On Tuesday, Powell testified before a congressional committee, and will speak before the Senate Banking Committee on Thursday. Powell’s message to Congress was decidedly hawkish, as the Fed chair said that the current policy of gradual rate increases would continue. He added that the economy was strong and that he expected inflation to move up to the Fed target of 2 percent. Importantly, Powell did not address the question of an acceleration of rate hikes, but his hawkish stance has increased the likelihood that the Fed will increase it projection from three to four rate hikes this year.

The Bank of Canada is one of many spectators monitoring events at the Federal Reserve. With the Fed expected to raise rates up to four times in 2018, the BoC will be pressed to match rate hikes with its southern neighbor, or risk having the Canadian currency head lower. Currently, the BoC is projecting only two rate hikes in 2018. Strong growth has propelled the BoC to raise rates three times since July, but there are some factors weighing against a rate hike before May. First, fourth quarter expansion may fall short of the BoC’s forecast of 2.5%. As well, the future of NAFTA remains unclear, as negotiations between Canada, Mexico and the US have floundered. If the US decides to pull out of NAFTA, the repercussions on the Canadian economy could be significant, and the BoC will have to delay any plans to raise rates.

USD/CAD Fundamentals

• 8:30 Canadian Current Account. Estimate -17.8B

• 8:30 US Personal Spending. Estimate 0.2%

• 8:30 US Unemployment Claims. Estimate 226K

• 8:30 US Personal Income. Estimate 0.3%

• 9:45 US Final Manufacturing PMI. Estimate 55.9

• 10:00 US Fed Chair Powell Testifies

• 10:00 US ISM Manufacturing PMI. Estimate 58.7

• 10:00 US Construction Spending. Estimate 0.3%

• 10:00 US ISM Manufacturing Prices. Estimate 70.5

• 10:30 US Natural Gas Storage. Estimate -71B

• All Day – US Total Vehicle Sales. Estimate 17.2M

• Canadian GDP. Estimate 1.0%

• 10:00 US Revised UoM Consumer Sentiment. Estimate 99.2

Open: 1.2832 High: 1.2862 Low: 1.2827 Close: 1.2855

USD/CAD Technical

USD/CAD inched higher in the Asian session and has posted slight gains in European trade

• 1.2757 is providing support

• 1.2855 was tested earlier in resistance and remains under pressure

• Current range: 1.2757 to 1.2855

Further levels in both directions:

• Below: 1.2757, 1.2630, 1.2494 and 1.2351

• Above: 1.2855, 1.2920 and 1.3014