FOREX 4 minutes to read

NY Open: Is the USDCAD sell-off overdone?

Summary:  USDCAD traders are waiting on tomorrow's Bank of Canada outing, but policy hawks and CAD bulls are likely to be disappointed.


USDCAD traders are biding their time until tomorrow’s Bank of Canada Monetary Policy Report, interest rate statement and Governor Poloz’s press conference. USDCAD was trading at 1.3270 just before the December 5 rate announcement. It touched 1.3660 on December 27 thanks to a combination of falling oil prices and the belief that the BoC had flipped to a dovish policy stance after a Poloz speech on December 6. 

USDCAD broke support at 1.3550 last Thursday, then accelerated lower yesterday when pivotal support in the 1.3330-50 area gave way. The sell-off coincided with a 12% rally in WTI from January 2. The move was that much sweeter because the discount applied to Alberta’s chief crude export, Western Canada Select (WCS), which narrowed from US dollar $29.50 to $10.50 on Monday (as per Bloomberg)

Poloz’s December 6 speech was deemed dovish in part because he warned that falling crude prices would have a meaningful impact on the macroeconomy.

Those expecting Poloz to flip back to a somewhat hawkish monetary policy may be sorely disappointed. WTI prices are well below the levels they were at in December when he last stated his concerns. Canada's central bank has said on numerous occasions that it is not concerned with “short-term” economic volatility as it has a much longer view horizon.

While recent oil and Canadian dollar price action may be welcome, they will take great pains to be neutral.

USDCAD has support at 1.3270 and 50% Fibonacci retracement support from the October low at 1.3220.

Wall Street added to yesterday’s gains in early trading this morning. The Dow Jones Industrial Average was up 1.11% as of 14:00 GMT, buoyed by upbeat expectations from the US/China trade talks. The rally, however, is far from entrenched. There are many areas which could trigger renewed selling including concerns over a prolonged US government shutdown. President Trump will address the nation tonight. His penchant for hyperbole and wild statements may curtail activity today.

The US dollar inched higher in New York, perhaps because traders believed that yesterday’s dollar sell-off might have been premature. This morning’s JOLTS survey showed another drop in job openings.
Chart: USDCAD 4-hour.  Source: Saxo Bank
Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)