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Loonie Steady Ahead of Key US Data, Jobs Friday

Published November 3, 2016
  • USDCAD continues to trade in its tight range surrounding 1.3400, as markets grapple with near term direction ahead of key event risks over the next few days
  • This morning, we receive plenty of top tier US data highlighted by jobless claims, factory orders, and ISM's non-manufacturing index
  • These come ahead of Friday's dual US and Canadian jobs reports which could really cause a double whammy of volatility considering their proximity to Tuesday's presidential election…
  • Yesterday's Fed meeting came in as expected; rates were held at current levels and market expectations for a December hike were solidified
  • The main point of contention this time around came from two dissenting votes against holding rates; this compares with one dissenter at the last meeting and may signify broadening support for a higher policy rate
  • As well, the committee noted that inflation "is expected to rise to two percent in the medium term", which is slightly more confident than the previous line that inflation is "expected to remain low for the near term" – fun times at the Fed for sure!
  • Wednesday also delivered some interesting news for oil as US crude inventories rose by a staggering 14M barrels last week, the largest weekly build since data collection began in 1982
  • WTI prices promptly plunged through a key level of support near $46 and now target the 200 day moving average at $43 (see Chart 2)
  • USDCAD seems comfortable in its current tight range, however extended periods of sideways trade are almost always followed by a violent breakout as the market inevitably pays for its complacency
  • The bias seems to be higher given the diverging monetary policy themes in the US and Canada and the poor landscape for oil prices, but one can never know for certain, so plan accordingly!

Charts: (1) USDCAD. (2) WTI. (3) Fed rate hike odds. (4) Economic Calendar.