USD/CAD Fundamental Analysis – week of December 18, 2017

The USDCAD pair closed the week in a strong manner as the dollar strengthened across the board late on Friday. This was in contrast to the choppy action that we had been seeing in the pair during the course of the week as the dollar strength waxed and waned based on the various events that unfolded during this period.

USDCAD At Highs of Range

The week began on a quiet note as various central banks were lining up the week with their scheduled announcements. The focus during the first half of the week was on the Fed which came out with the rate hike as was widely expected. The pair had moved to the highs of its range in anticipation of a hawkish Fed and also due to the tax reform bill that was being moved through the Senate. But, though the Fed did hike rates, the forecast for further rate hikes in 2018 were not as hawkish as was expected. In fact, 2 of the Fed members had dissented over the rate hike and though the growth forecast had improved, the outlook on inflation remained the same. This dovishness led to the pair moving back into the range again.

This was then followed by the retail sales data from the US on the next day and this came in much stronger than expected which helped the pair to move back into the highs of its range. The CAD was also on the backfoot as there was not much progress in the oil prices as they chopped around for much of the week. Late on Friday came in the news that the tax reform bill was on the verge of getting passed through the Senate and this helped the dollar to close the week on a strong note.

Looking ahead to the week ahead, we have the GDP data from the US and also the CPI data, retail sales and GDP data from Canada. This should bring in some volatility into a market that is slowly winding down for the year and these, along with the news around the tax bill should keep the pair busy. The only point of note would be to see whether the pair does manage a breakout through the range or whether it falls back into range.