USD/CAD Daily Fundamental Forecast – January 19, 2017

We had mentioned in our forecast yesterday that is was likely to be a key day in the direction of this pair with the rate statement from the BOC and the following press conference scheduled later. We had also mentioned that the USDCAD pair was in an important support region and that it is likely to bounce with the region below 1.3000 as the support and we got the exact price action yesterday as we saw the pair bounce strongly as the USD and the CAD moved in opposite directions.

The dollar gained strength across the board on the back of comments from the Fed Chief Yellen who said that the economic data was on the line of expectations of the Fed and that the Fed is likely to hike rates in the coming months if the data continues to hold good. This turned the attention of the market to the rate hikes from the Fed and helped to strengthen the USD. On the other hand, the BOC chose to hold the rates but the accompanying rate statement and in the press conference from the BOC Governor Poloz, it was made clear that the economy has not progressed much and that it stays in the same place as usual. This opens up the possibility of a rate cut in the coming months. Poloz also pointed out the risk of a trade war once the Trump administration takes charge. This impacted the CAD in a negative manner and it helped the USDCAD to bounce from its lows near the 1.3000 region and it broke through 1.3100 and 1.3200 and it trades well above that as of this writing.

It is exactly for this reason, the fact that the Fed is likely to hike rates and the BOC is set to lower rates, that we have been repeatedly mentioning that the pair is in an uptrend and it is only a matter of time before it reaches its medium term target of 1.4000. Looking ahead to today, we have the manufacturing sales data from Canada and the Unemployment claims and oil inventory data from the US, all of which are likely to bring in volatility but irrespective of these data, the uptrend in this pair is set in stone.