We have seen broad USD strength, but we can also throw in some rather shaky data in Canada, with poor retail sales and inflation data hitting the CAD last week. This has seen the prospect of a rate cut by the January meeting from the Bank of Canada increase to 23%, from 5% the week before.
The technical set-up is where we can aggregate all of the market news and see that USD/CAD is trading at the highest levels since March. The pair has broken out through rising channel resistance and also the 38.2% retracement of the January to May sell-off at C$1.3312. The RSI (relative strength index) is headed higher, but not at extreme levels, so the trend higher should be respected. A continuation of the break-out should target the C$1.3550-1.3600 level and it’s hard to really be bearish on the pair until we see a close through C$1.3000 (and the September/October double bottom).
The recent gains are made even more impressive given US crude is holding up, and the CAD traditionally does well in a rising oil environment. A sell-off in crude would clearly help USD/CAD long positions.
The event risk for the USD this week is huge though, and a downside miss to US Q3 GDP on Thursday (11.30pm AEDT) would pose a strong risk to USD longs. The market expects growth of 2.5%, but given Deutsche Bank are calling for 1.3% while JP Morgan a more impressive 3.3%, the fate of the USD could go either way. The Atlanta Federal Reserve run their own model of growth and its current projection is for 2%, which would throw some element of doubt around a December rate hike given US growth has averaged a meagre 1% in the last few quarters.
We also get a raft of Federal Reserve speakers in US trade. With this in mind and the other event risk in play, it would be wise to keep position sizing to a minimum.