USD/CAD Fundamental Analysis – week of January 23, 2017

The USDCAD pair has been moving exactly to script over the past few months. We have been repeatedly mentioning in our forecasts that the pair is in an uptrend and any correction in the pair should be viewed as only a correction in the uptrend and should be viewed as an opportunity to go long on this pair. We have also been saying that 1.3000 is the region to watch and only a clear break of that would nullify this argument and that this region would serve as an excellent place for the bulls to go long. We had a similar story play out last week.

During the early part of the week, with oil prices holding their ground in the highs of their range and with the dollar weakening across the board, we saw the USDCAD pair break below 1.3200 and then 1.3100 and head towards 1.3000 in anticipation of some positive news for the CAD during the BOC rate announcement and the following statement and the press conference. But we saw that the BOC chose to hold rates, as was widely expected, but it made it clear in the statement that concerns remain in the Canadian economy. The BOC Governor Poloz also stated as much in his press conference and said that the economy continues to stay still without much progress though the recent data have been better than usual. He felt that with such economic conditions, the BOC might seriously think about cutting rates in the coming months. This was one of the clear signals for rate cuts from the BOC and with the Fed looking to hike rates, we had a situation where the 2 economies were likely to move in opposite direction in terms of rates and policy. This was enough for the markets to push the pair from the low 1.3000s to beyond 1.3200 and it trades above 1.3300 to close the week.

Looking ahead to the coming week, we do not have any major economic news from Canada while we have the Advance GDP from the US. We expect the pair to consolidate with a bullish bias in anticipation of the return in strength of the USD.