USD/CAD Daily Fundamental Forecast – January 18, 2017

Yesterday, with the UK PM May laying out some guidelines on how the Brexit process is likely to proceed, we saw some of the global risks recede and whenever that happens, it is likely that the dollar gets hit and this is what we saw yesterday as well. The dollar was on the backfoot already but this event hit the dollar even harder as a result of which, we saw the USDCAD test the 1.3000 once again and again, we have seen a quick and strong bounce higher. We have been seeing the test of this region a few times already this week and it remains to be seen how strong this region is likely to be. The more stronger it is, the more likely is the uptrend and we can then be confident of our uptrend targets.

The dollar has been on the backfoot of late due to the risks surrounding Trump assuming office in the US as the traders and investors are still not sure what to expect from him and his administration. Though the likely fact of 3 rate hikes from the Fed is expected to support the dollar in the medium and long term, the short term risk surrounding the new government in the US is the one that is weakening the dollar. This is why we have been seeing the USDCAD pair test the bottom of its range repeatedly over the past few days. We believe that the bottom is likely to hold and if it does manage to do so, then we should see the next leg of the uptrend pretty soon.

A likely test of the lows could happen again today if the data that is due out of Canada comes out strong. Lately, we have seen that the economic data from Canada has been quite strong and we have to wait and see whether that cheer is seen in the BOC rate policy statement and the following press conference from the BOC Governor. The BOC is expected to hold rates today but the press meet and the statement will be watched closely and if the BOC comes out with a hawkish statement supporting the data and the economy, we should see the 1.3000 region under severe test once again.