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CAD weakens as Bank of Canada stresses uncertainty

Posted on: September 28, 2017

CAD was on the receiving end of a one-two punch yesterday, with USDCAD testing above 1.2500 briefly overnight before retracing some of the gains. The first and most powerful punch came from Poloz and the Bank of Canada, who stressed there is no predetermined path for interest rates from here and that they simply removed the insurance cuts. He also emphasized that wages are growing at a slower rate than expected given the recent economic strength. After the bullish talk from Finance Minister Morneau on Tuesday it felt a little like a good cop/bad cop routine. A rate increase in October has dropped to around 25% chance while December still sits around 60%. The renewed focus on data dependence makes the Canadian GDP number tomorrow even more important, we will see if we get another upside surprise.

The second punch was broad USD strength that dragged USDCAD higher but has since relaxed a bit this morning. The 9-page Trump Tax Plan still lacks significant details but is more comprehensive than anything else we have seen from the White House. US Q2 GDP came in a tick higher than expected while inventories also grew more than expected. US Yields continue to pop higher this morning with the 10-year grinding toward summer highs.

Looking at the charts, next resistance above is 1.2520/30 with 1.2563 coming in close behind. GDP represents a risk tomorrow for sure, and a bad print could see another squeeze toward 1.26. If we see a strong print expect USDCAD to be aggressively sold as participants bet on the end of the correction for the time being.

  • Yesterday's NA 1.2336 - 1.2483
  • Asia 1.2469 - 1.2507
  • London 1.2459 - 1.2519


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