USD/CAD Forecast: Canadian dollar unchanged, U.S. numbers mixed

The Canadian dollar has ticked upwards in the Thursday session. Currently, USD/CAD is trading at 1.3263, down 0.09% on the day. In economic news, Canada’s current account deficit dropped sharply to C$10.3 billion, well below the forecast of C$11.9 billion. In the U.S., the Core PCE Price Index dropped to 0.1%, shy of the estimate of 0.2%. Personal Spending improved to 0.6%, above the estimate of 0.4%. On the labor front, unemployment claims jumped to 234 thousand, well above the estimate of 221 thousand. This was the highest level since May. Later in the day, the Federal Reserve releases the minutes of its November policy meeting. On Friday, Canada releases GDP and the Raw Materials Price Index, while the U.S. will publish Chicago PMI. As well, the G-20 begins a two-day summit in Argentina.

The U.S. dollar was broadly lower on Wednesday, and the Canadian dollar managed to record slight gains as well. The catalyst was a surprise from the Federal Reserve. Jerome Powell, chair of the Fed, caught the markets off guard when he said that the current benchmark rate of 2-2.5 percent is “just below” the neutral range. This is in sharp contrast to Powell’s remarks just last month, when he said that rates were “a long way from neutral”. Powell’s hasty U-turn is likely due to the change in U.S. economic conditions in recent weeks – GDP has been slowing, the stock markets are down and oil prices have fallen. The Fed may have decided that this required an easing up on rate hikes in 2019, and Powell delivered this message to the markets. Only a few months ago, there was talk of ‘a rate hike each quarter’ in 2019, but now, some analysts are predicting only one or two hikes next year. Despite Powell’s dovish remarks, the odds of a December rate have not diminished, which stand at 79%, according to the CME Group.

G-20 leaders will gather on Friday, but the markets don’t have much interest in the summit’s agenda. Instead, all eyes will be focused on an expected meeting between President Trump and Chinese President Xi Jinping. An exchange of tariffs between the U.S. and China has taken a bite out of the economies of both and could dampen global economic activity. President Trump has taken a tough line on China ahead of the summit, threatening to raise the tariffs from 10 percent to 25 percent on $250 billion worth of Chinese goods. Will Trump carry out his threat? If so, the Canadian dollar could fall sharply. At the same time, the unpredictable Trump is known to prefer to reach a deal whenever possible, so his sharp rhetoric could be some grandstanding ahead of his crucial meeting with Xi. If the two leaders can “agree to disagree” and continue talking, risk appetite will improve and the Canadian dollar could move higher.

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USD/CAD Fundamentals

• 8:30 Canadian Current Account. Estimate -11.9B. Actual 10.3B

• 8:30 US Core PCE Price Index. Estimate 0.2%. Actual 0.1%

• 8:30 US Personal Spending. Estimate 0.4%. Actual 0.6%

• 8:30 US Unemployment Claims. Estimate 221K. Actual 235K

• 8:30 US Personal Income. Estimate 0.4%. Actual 0.4%

• 10:00 US Pending Home Sales. Estimate 0.8%

• 10:30 US Natural Gas Storage. Estimate -76B

• 14:00 US FOMC Meeting Minutes

• Day 1 – G-20 Meetings

• 9:45 US Chicago PMI. Estimate 58.6

Open: 1.3275 High: 1.3313 Low: 1.3254 Close: 1.3276

USD/CAD Technical

USD/CAD posted small gains in the Asian session but then retracted. In European trade, the pair posted slight losses but has recovered

• 1.3198 is providing support

• 1.3392 was tested earlier in resistance and is a weak line

• Current range: 1.3198 to 1.3292

Further levels in both directions:

• Below: 1.3198, 1.3099 and 1.2970

• Above: 1.3292, 1.3383, 1.3461 and 1.3552