USD/CAD Fundamental Analysis – Forecast for the week of September 19, 2016

The USD/CAD had a tough week as oil and gold tumbled and the dollar soared weighing heavily on the Loonie. The currency closed the week at 1.3213 with the pair gaining 1.26% for the week and remains a strong buy moving into the new week. The pair is down 4.54% on a YTD basis. CAD is down 0.4% from Thursday’s close and weakening into the NA open, threatening a break to fresh lows on the back of continued weakness in oil prices.

The broader tone is one of risk aversion and the USD is strengthening broadly, leaving CAD vulnerable to further downside. Sentiment is dominant, measures of implied CAD volatility are elevated, and risk reversals have been testing levels last seen in late June in the period surrounding the UK referendum. CAD is completely disconnected from considerations of relative central bank policy, the 2Y U.S.-Canada yield spread down nearly 10bpts from its late August high just under 25bpts. Policy risks are likely to escalate into next week as we look to BoC Gov. Poloz’ September 20 speech titled ‘Living with lower for longer’, scheduled just ahead of the September 21 FOMC

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This Week’s Economic Events That You Should Be Monitoring:

Date Country Name Volatility Previous
9/20/2016 AUD RBA Meeting’s Minutes 3
9/20/2016 CAD BoC Governor Poloz 3
9/21/2016 AUD Mid-Year Economic Outlook 3
9/21/2016 JPY BoJ Interest Rate Decision 3 -0.1
9/21/2016 JPY BoJ Monetary Policy Statement 3
9/21/2016 JPY BoJ Press Conference 3
9/21/2016 USD FOMC Economic Projections 3
9/21/2016 USD Fed’s Monetary Policy Statement 3
9/21/2016 USD Fed Interest Rate Decision 3 0.5
9/21/2016 USD FOMC Press conference 3
9/21/2016 NZD RBNZ Interest Rate Decision 3 2
9/22/2016 EUR ECB President Draghi’s Speech 3
9/23/2016 AUD RBA’s Governor Lowe Speech 3

Government Bond Auctions

Date Time           Country               Auction

Sep 19 11:00 Belgium Eur 2.8-3.5bn 4.5% Mar 2026,

Sep 20 11:30 UK Gbp 2.5bn 1.5% Jul 2047 Gilt

Sep 21 10:30 Denmark Holds bond auction

Sep 21 11:03 Sweden Sek 2bn 4.25% Feb 2019 & Sek 1.5bn 1.5% Nov 2023 bonds

Sep 21 11:30 Germany Eur 4bn 0% Oct 2021 Bobl

Sep 22 17:20 Italy Announces details of bond auction

Sep 22 19:00 US Usd 11bn 0.125% Jul 2026 TIP

Sep 26 11:30 Germany Eur 1.5bn Sep 2017 Bubill

Sep 26 13:00 Norway Details of bond auction on Sep 28

Sep 27 11:00 Netherlands Eur 0.75-1.25bn 4% Jan 2037 DSL

Sep 27 11:10 Italy Holds zero coupon/BTP€i auction

Sep 28 11:05 Norway Holds bond auction

Sep 28 11:30 Germany Eur 4bn Sep 2018 Schatz

Sep 29 11:03 Sweden Holds I/L bond auction