Talking Points:

- USD/CAD Tumbles to Fresh 2017-Low as BoC Delivers Rate-Hike, Endorses Hawkish Outlook.

- Dovish Reserve Bank of Australia (RBA) Rhetoric to Fuel AUD/USD Losses.

- Sign Up for the DailyFX Trading Webinarsfor an opportunity to discuss potential trade setups.

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/CAD

1.2211

1.2415

1.2146

163

269

USD/CAD tumbled to a fresh 2017-low (1.2146) as the Bank of Canada (BoC) increased the benchmark interest rate to 1.00%, and the shift in market behavior may continue to unfold throughout the remainder of the year as Governor Stephen Poloz and Co. appear to be on course to further normalize monetary policy over the coming months.

Even though the BoC warns ‘future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments,’ the fresh remarks suggest the central bank will continue to implement higher borrowing-costs as ‘the level of GDP is now higher than the Bank had expected.’ As a result, the bearish USD/CAD behavior may persist going into Canada’s Employment report as the region is expected to add another 15.0K jobs in August.

In light of the market reaction to the BoC rate decision, the broader outlook for USD/CAD is becoming increasingly bearish especially as the pair threatens the upward trend from back in 2012.

USD/CAD Daily Chart

USD/CAD Daily Chart

For Additional Resources, Download the DailyFX Trading Guides and 3QForecasts

  • Downside targets are on the radar for USD/CAD as the Relative Strength Index (RSI) highlights a bearish trigger and appears to be slipping below 30; may see the bearish momentum gather pace should the oscillator push deeper into oversold territory.
  • Close below the 1.2210 (50% expansion) region raises the risk for a run at the June 2015-low (1.2128), which sits just above the 1.2080 (61.8% expansion) hurdle, with the next region of interest coming in around 1.1890, which comes in beneath the May 2015-low (1.1920).

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.8014

0.8021

0.7964

18

57

AUD/USD pulls back from the monthly-high (0.8028), with the pair at risk for further losses should Reserve Bank of Australia (RBA) officials increase their efforts to jawbone the local currency.

Deputy Governor Guy Debelle and Governor Philip Lowe may continue to strike a cautious tone and toughen the verbal intervention on the Australian dollar as ‘an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.’ As a result, the lackluster 2Q Gross Domestic Product (GDP) report may encourage the RBA to carry the record-low interest rate into 2018, and the aussie-dollar exchange rate may continue to give back the rebound from the August-low (0.7808) especially as the Federal Reserve keeps the door open to further normalize monetary policy in 2017.

In contrast to the dovish remarks from Fed Governor Lael Brainard, Dallas Fed President Robert Kaplan, also a 2017-voting member on the Federal Open Market Committee (FOMC), argued the central bank ‘should begin the balance-sheet rundown as soon as possible’ as economic activity is expected to ‘catch up’ in the fourth-quarter of the year. In turn, the FOMC appears to be on course to unload its asset purchase over the coming months, but Fed officials may continue to project a terminal benchmark interest rate close to 3.00% as inflation runs below the 2% target.

In turn, AUD/USD stands at risk of facing choppy price action ahead of the FOMC interest rate decision on September 20 amid the mixed rhetoric coming out of the central bank.

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using Trading View

  • AUD/USD stands at risk of facing range-bound conditions as it struggles to test the 2017-high (0.8066), with a failed attempt to close above the 0.8020 (38.2% retracement) hurdle raising the risk for a near-term pullback in the exchange rate.
  • In turn, a move below the 0.7930 (50% retracement) to 0.7940 (61.8% retracement) region may open up the near-term support zone around 0.7850 (38.2% retracement) to 0.7860 (61.8% expansion), with next downside hurdle coming in around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), the former-resistance zone.

Retail Sentiment

Retail Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 65.6% of traders are net-long USD/CAD with the ratio of traders long to short at 1.9 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.34092; price has moved 8.8% lower since then. The number of traders net-long is 2.6% higher than yesterday and 5.4% lower from last week, while the number of traders net-short is 7.6% lower than yesterday and 36.9% higher from last week.
  • Retail trader data shows 34.6% of traders are net-long AUD/USD with the ratio of traders short to long at 1.89 to 1. In fact, traders have remained net-short since June 04 when AUD/USD traded near 0.74707; price has moved 7.0% higher since then. The number of traders net-long is 9.5% higher than yesterday and 2.8% lower from last week, while the number of traders net-short is 4.6% lower than yesterday and 6.1% higher from last week.
DailyFX Calendar

Click Here for the DailyFX Calendar

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.