USDCAD could make a big move upwards in 2017 on potential BoC rate cuts

A volatile and wild 2016 is coming to an end and at FXStreet we are already looking forward to what 2017 may bring to the markets, which doesn't seem to be less interesting from a trading point of view. To get a glance on the upcoming trends and developments for the markets, we have asked our best contributors ten questions to help us understand what may be ahead. Here are the views from Yohay Elam, from Forex Crunch:

1. What will 2016 be remembered for?

2016 will probably be remembered for the big political upsets: Brexit in June and Trump in November. Both represented a backlash against the establishment and against globalization. They were accompanied by a long run-up that had a significant impact on markets. They both triggered extreme volatility but in both nights, liquidity was ample and markets worked well. The second reaction to both events was not fully expected. In Britain, stocks rebounded quickly, but the pound remained weak. In the US, optimism replaced pessimism within hours. 

2. Which were your most significant achievements this year?

The biggest achievements of Forex Crunch were covering these two significant events in real time as well as explaining traders what was priced in and what wasn't. The realization that of Leave and President Trump in real-time were the best moments for me and the readers. Also, the site now features a wider variety of views which enrich it. 

3. What emerging trends or issues should traders prepare for in 2017?

The easy answer is growing impact from politics: Trump's first year in office, as well as elections in France and later Germany, will keep us busy. This makes central bankers somewhat less important than they used to be. They will no longer be "the only game in town" but will not disappear in the shadows either. In Europe, some fiscal stimulus could replace austerity on an election year and in line with other countries. Britain could also join in. This could be the year when we talk about "inflation lifting its ugly head" more often than worries about deflation which have dominated beforehand. Inflation could come from China rather than from the US.

4. Which will be the best and worst performing currencies in 2017 and why?

The US dollar could reverse its gains as the dust settles in after Trump's inauguration. Like with many politicians, promises are meant to be broken and a Republican Congress is where the buck could stop. The pound could extend its falls as Brexit reality bites in, something that has not happened so far. The winners could be the euro, that may fall early in the year but recover on fiscal stimulus and more mainstream election results. Another winner could be the Australian dollar, which could enjoy Chinese efforts to maintain its growth.

5. Which under-the-radar currency pair do you expect to make a big move in 2017?

USD/CAD could make a big move to the upside due to two reasons. The first is oil prices unable to rise and this could weigh on the loonie. Another reason is a lack of US demand due to less stimulus. Both factors could trigger a rate cut. The BOC has already told us that the lower end for rates is -0.50%, a full percentage point under the current level. The Canadian dollar has scope for falls, something that may eventually help the Canadian economy, but not in 2017.

6. Which macroeconomic events will have the greatest impact on the FX markets in 2017?

The pace of FED hikes remains the No. 1 driver and this depends on Trump's policies more than anything else. Another big event is the OPEC meeting in June. After they finally succeeded in reaching an accord, markets will closely watch the implementation and the follow-up in the next meeting. And as aforementioned, elections, especially in France, will play a major role.

7. Which asset class will cause the next financial crisis?

The bond rally is beginning to reverse, and that could sow the seeds for the next financial crisis. However, central banks can mitigate this. The biggest fear is that companies in emerging markets will have issues in raising foreign-currency debt, most prominently in US dollars. A financial squeeze could push capital out of these economies and push them lower. While China probably has the firepower to navigate through the storm, other countries in Asia and Latin America could suffer. The Fed could react to such potential shocks preemptively, delaying or skipping such a crisis altogether.

8. What will you be focused on next year?

I will be focused on politics and their impact on markets. Central bankers are still important but have somewhat less influence, and they are less exciting than the impact of politics on currencies. This is not limited to the elections but also to policy, which could certainly be on the move.

9. Who are the people to watch in 2017 regarding the impact on the industry?

The people to watch regarding the industry are the regulators. The moves by CySec and the FCA to prohibit forex bonuses and limit leverage are huge moves. In 2017, we will see the actual implementation and perhaps we will see more measures from these authorities and others. The short-term impact could be negative for growth in the industry, but the long-term effect could certainly be positive, making the forex industry more mature and setting it on a course to become a fully-fledged asset class.

10. What are your New Year's resolutions?

I am sorry to disappoint and say I do not have specific resolutions, but only a general one. Like Team GB in the Olympics, my goal is to make all the possible improvements, wherever they may be found. Together, every improvement to the quality of the site, its speed, the breadth of analysis, the video cooperation with FXStreet and any other possible thing will all contribute to a much better service for the readers.