USD/CAD Fundamental Analysis – week of January 22, 2018

The USDCAD pair had a pretty volatile week with much of the price action being driven by the CAD rather than by the dollar. The dollar spent much of the week in a slow and steady pace without troubling any of the other currencies but for the CAD, the BOC rate hike and the following press conference provided enough fodder for a lot of volatility.

USDCAD Pretty Volatile

The week began quietly for the pair as the market waited in anticipation of the rate hike announcement from the BOC. The BOC is known to be a very hawkish central bank and it is a surprise that just a couple of months back, their Governor said that he does not have a timeline for the rate hike but they have gone ahead and fulfilled the market’s expectations for a rate hike. They are known to be ahead of the curve usually and this time, they have managed to prove that as well. The pair move on either side towards the highs and the lows of the range following the announcement but settled down in the middle of the range.

Despite the announcement, the pair spent much of the week between the 1.23 and 1.25 regions. The crude oil prices continue to hold steady though it slightly weakened during the course of the week. Also, there continues to be a bit of uncertainty over the NAFTA agreement and talks and worries that the US might pull out of the agreement in continuing conflict with its neighbours. This has helped to contain the strength of the CAD in the short term.

Looking ahead to the coming week, the focus is expected to shift back to dollar and the shutdown that we have entered into, as far as the US is concerned. This shutdown is likely to have minimal impact on the market. We have the GDP data from the US and the retail sales and CPI data from Canada and this should bring in a bit of volatility in the pair. We are not sure whether this would be enough to help the pair to break through its long held range and we doubt so. We continue to believe that the downtrend is intact but on the other hand, the market is primed for a bounce as the focus shifts back to the dollar and rate hikes from the Fed.