USDCAD Short: BoC Wait on NAFTA Deal to Steepen Rate Path
USDCAD Trading Strategy: Short on rallies to 1.3060, target 1.28 stop 1.3150
- Trade Risk: Failure to reach NAFTA deal and soft Canadian inflation
USDCAD Fundamental Overview
CAD: The largest risk to the outlook for the Canadian Dollar is the outcome regarding NAFTA. With a touted deadline of October 1st, the headline risk for USDCAD is high and will likely dictate near term price action for the pair. Recent rhetoric has been somewhat positive with source reports signalling that Canada were willing to provide key concessions in order to reach an agreement, consequently the Loonie has firmed in recent trading sessions.
Given the firm data out of Canada, the BoC has signalled their willingness to raise rates in the short term. Alongside this, recent comments from Deputy Governor Wilkins were on the hawkish side with the rate setter discussing whether to remove its “gradual approach” from its current rate guidance. If indeed an agreement is reached, this could potentially see markets reprice a steeper rate path from the BoC.
On the data front, eyes will be on the upcoming CPI report, in which a a softer figure could cool bets of an aggressive tightening stance and pressure the Loonie.
With Fed tightening priced in the markets, the rise in the USD index may be somewhat modest at best from these levels. That said, CFTC data has shown a reduction in USD long positioning over the past two weeks with speculators shedding $2.5bln worth of longs, suggesting that the Dollar could top out. Alongside this, inflationary pressures have seemingly eased following this weeks PPI and CPI releases, which in turn has reigned in expectations of a steeper rate path from the Fed, thus weighing on the greenback.
USDCAD Technical Overview
Resistance 1: 1.3050 (Psychological)
Resistance 2: 1.3115 (23.6% Fibonacci Level)
Resistance 3: 1.3200 (Psychological)
Support 1: 1.2980
Support 2: 1.2950 (38.2% Fibonacci Level)
Support 3: 1.2910 (200DMA)
USDCAD PRICE CHART: Daily Time Frame (January-September 2018)
--- Written by Justin McQueen, Market Analyst
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