USD/CAD Fundamental Analysis – week of March 20, 2017

The USDCAD lost close to 200 pips during the course of the week and though the pair did recover towards the weekly close, the more important fact is that the pair has now fallen back into the larger range which exposes it to the lows of the range. This is what we have been seeing over the last few months as the pair has repeatedly moved towards the 1.35 region only to fail there every time and move back towards the bottom of the range at 1.30 region.

Dollar Weakens Across the Board

The reason for the fall this time was the weakening of the dollar across the board following the FOMC rate announcement and statement that came out during the middle of the week. The Fed hiked rates as was widely expected but this was already priced into the markets and hence did not have much impact on the prices of USDCAD. But the market was expecting a hawkish statement but the Fed chose to have a middle path in the statement leaving the timing of the next rate hike to the incoming economic data.

This disappointed the dollar bulls and the dollar was sold across the board which pushed the USDCAD from the 1.35 region through 1.34 and it went down as far as 1.33 before it found some support there which was able to hold till the end of the week.

Looking ahead to the coming week, we have the CPI and Retail Sales data from Canada and not much news from the US. If Canada continues to throw up good economic data, as it has been doing recently, then we could see the USDCAD pair weaken even further towards 1.31 and below and considering the price action from before, this is a real possibility. With the US dollar also set to continue to weaken in the short term, we could see the pair weakening as well. But we still believe that the pair will hold the 1.30 region (if it gets there) and the dollar will strengthen in the medium term pushing the pair back towards 1.35 and beyond.