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Yellen Unites Fed with Hawkish Comments; Friday’s Jobs Data the Key

Published August 29, 2016
  • USDCAD had a wild ride on Friday – initially lurching lower into the mid 1.2800's before making a compelling comeback to close at 1.3000 for the week – after the usually dovish Fed Chair Janet Yellen said rate hikes were on the table before year end
  • Her comments were seen as finally establishing a united voice from the Fed after four of her influential colleagues made similar comments over the past two weeks
  • Following her remarks, the ever hawkish Vice Chair Stanley Fischer threw down the gauntlet by saying that her speech was "…consistent with the possibility of two rate hikes this year"
  • The purpose of his statement is likely to ensure that at least one hike gets across the line by December…
  • …at present there is a 30% chance they raise rates in September and close to an 80% chance of at least one hike before the end of 2016, according to the futures market
  • Central to this occurring are Friday's jobs numbers; do not discount the Fed's long held scapegoat called "data dependence"…
  • Should the US labour market continue to display its recent run of steady growth, the market will become less skeptical of the Fed's recent hawkish pronouncements
  • The August forecast is: 180k jobs created, unemployment rate to drop to 4.8% from 4.9% in July
  • USDCAD needs to hold above 1.3000 this week and preferably to close above 1.3030 in order for USD bulls to really take charge and stage another run to the 200 DMA, which sits just under 1.3300 at present
  • Canada reports GDP figures on Tuesday and employment data next Friday; this week is again predominantly influenced by US data and thus the risk of a larger topside move is more pronounced given the lack of domestic data to potentially offset it

Charts: (1) USDCAD above 1.3030 targets 1.3300. (2) USD Index breaks downtrend. (3) WTI looking precarious in flag formation. (4) Economic Calendar is once again dominated by the US this week.