September is on its last legs, but the US dollar rally is not. The Japanese yen led the major G-10 currencies lower (down 2.4$ from August close) while Sterling and the Canadian dollar scraped out tiny gains.
USDCAD has managed to climb 0.18% gain month-to-date which speaks to the FX market confusion around the US/Canada Nafta talks. The American deadline for a deal is September 30. They don’t believe they will come to terms with Canada by that date so are releasing the draft of the Mexico/US deal today.
FX markets do not believe that Canada missing the American deadline means the end of Nafta; otherwise, USDCAD would be pushing up against the 2018 peak of 1.3385. All this deadline means (to Canada) is there will be another one. The trade talks will go on as it is in the best interests of both countries.
The Bank of Canada says it is “data dependent, not headline dependent.” Assuming that is true, another 0.25% rate hike is likely on October 25, providing the domestic data remains strong.
The prospect of rising Canadian interest rates, good economic data and ongoing trade talks will limit USDCAD gains below 1.3385. However, hostile trade rhetoric and the risk that President Trump could follow through on his threat of 25% tariffs on Canadian cars, will put a floor under USDCAD losses suggesting a 1.2750-1.3350 range for the rest of the year.
Overnight FX price action was mixed. EURUSD extended losses from yesterday and is starting the New York session at the bottom of its 1.1582-1.1650 range. At 5.1%, Germany’s September jobless rate made a new record low. EURUSD traders didn’t care. They were more focused on the Italian government’s plan for a budget deficit of 2.4% of GDP, defying the EU’s wish for continued austerity. Eurozone September Core CPI dipped to 0.9% (from 1.1%) supporting Mario Draghi’s view that monetary stimulus is still needed.
Sterling continues to be weighed down by Brexit news and by a weaker-than-expected Q2 GDP reading of 1.2%, y/y. (forecast 1.3%, y/y) GBPUSD dropped from 1.3088 to 1.3035.
USDJPY posted a new 2018 peak of 113.63, powered by the US interest rate outlook. The Nikkei 225 is near a 26-year peak, supported by the weak yen and hopes for strong Japanese corporate earnings.
US Personal Consumption Expenditure Price data and Michigan Consumer Sentiment Index are on tap. It’s a busy day for data in Canada as well. July GDP (forecast 0.1%, m/m vs June 0.0%) will be the currency mover on a surprise in either direction.
It is also month end which means portfolio rebalancing flows around the 1600 GMT fixing period. Month to month US equity performance compared to the other major world indices was not that impressive. However, it is also a quarter end and US equities outperformed which could lead to some US dollar selling.
USDCAD Technical Outlook
The intraday USDCAD technicals are bullish while prices are above 1.2980 and looking to break above resistance at 1.3080 to target 1.3200. A move below minor support at 1.3000 andf uptrend line support from last week (1.2980) would extend losses to 1.2890. Long term, the uptrend from July 2014 is valid while prices are above 1.2580.
Today’s Range 1.29.80-1.3080