The ongoing NAFTA talks continue overhang the Canadian dollar, there is still a chance that nothing will happen by month end causing more volatility to the currency. There clear direction as to where the CAD is going, everything is predicated on what the next senior government official says or tweets.
USDCAD 1.3200, 1.3175, 1.3155 1.3262, 1.3278, 1.3298
USD-CAD has remained buoyant, near Tuesday’s seven-week high at 1.3207, amid the turn lower in oil prices, which is now into a third day of decline, and as market participants warily look on the latest round of trade talks between Canada and the U.S., which recommenced yesterday and are due to run until tomorrow. Any news of a breakthrough on the trade front would likely spark a sharp tumble in USD-CAD. The BoC left policy unchanged yesterday, as had been widely anticipated, which caused little stir in Canadian markets, which will now look to the bank’s economic progress report today for more detail on its prognosis of the economy. The BoC yesterday in its post-meeting statement said growth is evolving as expected, while the jump to 3.0% y/y CPI was due to a temporary factors and should slow to 2% by early 2019. The BoC said that core inflation remains firmly around 2%, while wage growth remains moderate, and while the U.S. economy remained robust the bank acknowledged the “elevated tensions” about trade. USD-CAD support at 1.3137-40.
EUR-USD turned lower, back to the lower 1.1600s after posting a six-day high at 1.1659. A rise in BTPs, reflecting a optimism about Italian government’s budget demands, helped lift the pair from sub-1.1550 levels over the last day, though we still class EUR-USD as being amidst an overall bear trend, one that’s been unfolding since mid April. We put greater odds for a sustained move to the downside than to the upside. Incoming U.S. data — particularly this Friday’s August employment report — should firm-up expectations for a 25 bp Fed hike in December, which would follow an already fully-anticipated 25 bp hike in September. Fed fund futures have been discounting better than 60% odds for a December hike. We would also expect the Dollar to appreciate in the scenario of sustained risk aversion in global markets. EUR-USD has resistance at 1.1694-95.