USDCAD has erased Tuesday’s rally and is probing support in the 1.2520-25 area.  The fall-out from President Trump’s “Terminate NAFTA” comments dissipated with traders shifting their focus to interest rate policies and oil prices.

The Bank of Canada is in rate hiking mode and widely expected to raise interest rates for the second time this year, in October.  Meanwhile, south of the border, the Federal Reserve appears lost.  Numerous Federal Open Market Committee (FOMC) members have expressed the need for ‘caution” in term s of further rate increases.  The idea that Canadian rates have room to rise while US rate increases may have run their course continues to put downward pressure on USDCAD.

A rebound in oil prices has offered another layer of support for Canadian dollar bulls. West Texas Intermediate (WTI) has risen from $46.44 on August 17 to $48.40 this morning.  USDCAD declined from 1.2705 to 1.2520 in the same period.

Oil prices are underpinned by steady declines in US Crude inventories. Wednesday, the Energy Information Administration (EIA) reported a decline of 3.3 million barrels, the eighth week in a row that supplies dropped.  Prices received additional support from news that Tropical Depression Henry may disrupt oil production in the Gulf of Mexico.

Chart: USDCAD and WTI oil prices 4 hour

Overnight, FX markets struggled to find direction.  Prices see-sawed within recent ranges and by the time New York started, the US dollar had posted minor gains against the majors except for Sterling and the Loonie.

NZDUSD popped briefly on news of a Trade Balanced surplus (NZ85.0 million).  However, negative NZDUSD sentiment weighed on the currency and prices declined.

Lower commodity prices put downward pressure on AUDUSD which traded in a 0.7868-0.7919 range.

USDJPY rallied from 108.85 to 109.40 on profit taking ahead of the Jackson Hole meeting

EURUSD popped to the overnight high in early New York trading after the weekly Jobless Claims data (Actual 234,000 vs. forecast 238,000) but the move was unwound just as quickly.  EURUSD traded in a 1.1765-1.1818 range.

UK GDP data was as expected.  (Q2 GDP Actual 0.3%, q/q, 1.7%, y/y) and GBPUSD climbed from 1.2775 to 1.2835.

The Jackson Hole Symposium starts today, but Fed Chair Janet Yellen and ECB President Mario Draghi do not speak until Friday.  Traders hoping for some monetary policy clarity and direction from these two speakers are likely to be disappointed.

USDCAD Technical outlook:

The intraday USDCAD technicals are bearish while prices are below 1.2570 and looking for a break of support at 1.2520 to extend losses to 1.2320.  A break above 1.2770 would target 1.2860.  For today, USDCAD support is at 1.2520 and 1.2460.  Resistance 1.2570 and 1.2630

Today’s Range 1.2520-1.2570

Chart : USDCAD 30 minute