USD/CAD Fundamental Analysis – week of September 11, 2017

The USDCAD pair crashed during the course of the week as the BOC continued to press on its hawkish mode and hiked rates last week which helped to strengthen the CAD currency and this, along with the strong and steady oil prices, helped the pair to move down through the important support region around 1.2440 and move towards the 1.20 region during the course of the week.

USDCAD Crashes on BOC Rate Hike

The pair had begun its next leg of its downtrend right in the first half of the week as the weakness in the dollar was enough to keep the pair under pressure. Also, we saw the oil prices move higher as the demand for crude oil began to move higher as the Hurricane Harvey ended and this helped to support the CAD in the early part of the week. We saw the pair make a slow and steady move below the 1.2440 region and we had warned that this pointed to the next leg of the downtrend.

The real news that broke the back of this pair was the surprise interest rate announced by the BOC. The market had priced in only about 50% chance of the rate hike and hence the traders were caught out by the surprise and this announcement was immediately followed by a 200 pip move towards 1.21. The BOC has always been a very hawkish central bank which has stayed ahead of the market and been decisive with its moves, not giving much of a chance for the market to speculate and damage the CAD and the Canadian economy. They proved it yet again over the last week and the pair now looks at 1.20 as the next target.

Looking ahead to the coming week, there is not much news from Canada but we have the CPI, PPI and Retail Sales data from the US which is likely to bring in volatility. We believe that the dollar would continue to be weak in the short term and this is likely to open up 1.20 as the next target but there is also a chance that we could see a bounce from this region as it presents a strong support due to the fact that it is a large round figure which is likely to attract a lot of buys. This is the kind of action that we are likely to see in the upcoming week.