USD/CAD Fundamental Analysis – week of December 12, 2016

USDCAD has a week when it was under pressure for most of the week as the oil prices continued to be buoyant, after a brief period of weakness. Over the past couple of week, the oil prices have been the dominant theme as far as this pair is concerned and the pair has been fluctuating according to the changes in price in oil. With the announcement of the deal between the OPEC and the non-OPEC members over this weekend, we can expect oil prices to rise even further and the pair is likely to be under pressure in the forthcoming week as well.

Last week, we saw the trade balance data from Canada continue the recent trend of improving data coming out from the Canadian region, a trend that we have been seeing over the past few weeks. We also saw the release of the BOC rate decision and the statement and as expected, the rates were kept on hold at 0.5% and the statement painted an encouraging picture of the economy with still more improvements to come in the future with rising oil prices. Both these helped to keep the CAD strong, along with the rising oil prices, and this was reflected in the pricing of this pair. The dollar also did not gain much in strength as it waited for the Fed meeting in the coming week. The pair seems to be forming a base in the support region at around 1.3180.

In the coming week, we have the Fed rate statement in which the markets expect a hike of 0.25% along with a guidance of further hikes in 2017. It remains to be seen how the market would react to the statement. We also have the retail sales data from the US and the Manufacturing Sales data from the Canadian region and all of these data should lead to high volatility in the pair in the coming week. We continue to maintain that as long as 1.3000 holds, this pair would continue to be in an uptrend as the oil prices tend to flatten out in the medium term.