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CAD Analysis and Talking Points

  • USDCAD to Extend Losses on Strong GDP
  • NAFTA Agreement Reduces Risk Premium for Canadian Dollar

For a more in-depth analysis on CAD, check out the Q3 Forecast for CAD

Canadian GDP is expected to grow by 3% on an annualised basis which would mark the highest reading since Q2 17. Risks are tilted to the upside for today’s GDP report with smart estimates going for a GDP rise of 3.07%. If indeed Canadian growth figures rise above expectations, then this could see a bid in the Loonie potentially setting USDCAD for a further corrective move lower. Option implied volatility suggests a breakeven of 70pips.

USDCAD Bears Eye Strong Canadian GDP Report for Correction Lower

Source: DailyFX Economic Calendar

Potential for NAFTA Agreement

An agreement regarding NAFTA between the US and Canada seems likely to be concluded by the end of the week following positive tones from Canadian PM Trudeau, who stated that an agreement could be made by Friday. US President Trump was also upbeat over NAFTA negotiations having signalled the possibility of a deal by this week. Consequently, this will likely buoy the currency in the short term with the BoC set to maintain their relatively hawkish stance. As it stands, money markets are pricing in a hike for October.

Bank of Canada Rate Hike Expectations

USDCAD Bears Eye Strong Canadian GDP Report for Correction Lower

Source: Thomson Reuters

USDCAD PRICE CHART: Daily Time Frame (January 2018-July 2018)

USDCAD Bears Eye Strong Canadian GDP Report for Correction Lower

Chart by IG

A strong reading could see USDCAD test Tuesday’s lows at 1.2890 before a move towards the 200DMA which resides at 1.2871. Failure to hold, leaves scope for a run in on 50% Fib level at 1.2815. On the topside, near term resistance sits at 1.2950, which marks the 38.2% Fib level, while psychological resistance resides at 1.30.

IG Client Positioning Sentiment states recent changes in sentiment provides a further mixed USDCAD trading bias.

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX