USD/CAD Fundamental Forecast – March 1, 2016

Analysis and Recommendations:

The USD/CAD added 49 points to trade at 1.3562 as oil prices declined and the US dollar rebounded. The surprise announcement from the PBOC did nothing to support the Loonie today.  The Canadian dollar strengthened on Friday to a two-and-a-half-month high against its U.S. counterpart as crude oil prices and global stocks rallied.

Crude oil prices rose as strong U.S. gasoline demand and hopes of OPEC action outweighed concerns over fundamental oversupply. U.S. crude prices were up 4.11 percent to $34.43 a barrel.

While the U.S. dollar softened against the loonie, the greenback rose against a basket of major currencies, helped by an upward revision to U.S. fourth quarter growth.

Finance Minister Bill Morneau said the government will push ahead with plans to invest in infrastructure projects. Adding private-sector spending to projects could spur even greater spending and limit the need for a Bank of Canada rate cut.

The implied probability of a Bank of Canada rate cut by mid-year has dropped to 37 percent from around 60 percent at the start of the week.

Recently Canada’s inflation readings have remained steady despite Oil’s drop thanks to exports and such a balance could make USD/CAD one of the great reversions to strong moves of 2016. The 2-yr yield spread has narrowed from -60bp to -26.4 currently which is a 3-month low. Even if the Fed does manage to fit a hike or two in this year CAD strength could become pronounced against other weaker currencies like the British Pound which is facing a ‘Brexit’ and dropped 5.4% last week against the Canadian Dollar.

Looking at this week’s economic prints on Tuesday of GDP and RBC Canadian Manufacturing traders will get a sense of whether or not the anticipated lack of BoC action is warranted. GDP is expected to stay barely above 0.0% at 0.1% MoM while RBC Canadian Manufacturing PMI will be looked at to see if a contraction is continuing. A negative GDP print which is not expected and a further retraction below 50 on PMI could get traders pricing in more BoC action. Until then the CAD may remain one of the strongest FX currencies in the G10 for the foreseeable future.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

Today’s economic releases:

 

Upcoming Economic Events that you should be monitoring:

Tuesday, March 1, 2016

Government Bond Auctions

Date Time and Country

Mar 01 n/a UK Details of Gilt auction on Mar 08 & 10

Mar 02 11:03 Sweden Holds bond auction

Mar 02 11:05 Norway Holds bond auction

Mar 02 11:30 Germany Euro 4bn Apr 2021 Bobl

Mar 02 11:30 UK 1.5% 2021 Gilt auction

Mar 03 10:30 Spain Holds bond auction

Mar 03 11:50 France Holds bond auction

Mar 03 17:20 Sweden Details of I/L auction on Mar 10