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USDCAD Rises Slightly on Italian Vote

Published December 5, 2016
  • USDCAD rose to an overnight high in the mid 1.33's as Italian voters rejected a constitutional reform proposal from current PM Renzi, forcing him to resign
  • The euro initially lurched lower on the news, as the 'No' vote may be a negative for Italian growth and create difficultly for Italian banks to raise capital as it raises questions regarding Italy's commitment to the euro zone
  • The loonie's losses were limited as oil prices traded to 16-month highs, rising on prospects of a tightening market following OPEC's output cut last week
  • WTI traded to $52.12 for a gain of 0.8 percent while Brent soared to $55.33 a barrel, up 1.1 percent
  • US 2 and 10 year yields are also higher this morning with spreads to Canadian government bonds rising in favour of the greenback after declining all last week
  • This could provide support for USDCAD spot; however, momentum in the near term has shifted to favour a test lower, possibly to the 100 day moving average circa 1.3190
  • Longer term fundamentals still favour the USD as inflation expectations, labour market growth, and fiscal/monetary policy are all aligned in favour of the USD at present
  • This week is packed with top tier economic data, highlighted by non-manufacturing PMI, trade balance, and consumer sentiment from the US
  • Meanwhile, Canada will be releasing trade data and housing starts along with the latest BoC rate decision
  • BoC Governor Poloz is widely expected to keep rates unchanged and strike a balanced tone
  • Friday's jobs data was once again mixed for Canada with the headline of +10k better than expected, but the breakdown highlights another woeful performance since all the gains came from part time positions
  • Seasonality studies (Chart 2) show that the loonie typically struggles during December, with average losses of 2.09% over the past three years 

Charts: (1) USDCAD testing its recent range. (2) USDCAD seasonal performance for December re-based to zero. (3) Economic Calendar.