NY Open: Is the USDCAD sell-off overdone?

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.