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USDCAD resumes rally on dovish comments from Poloz. US Retail Sales and PPI on deck. Chart technicals supportive.

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Summary
  • USDCAD: It was an eventful session yesterday for USDCAD traders. The US CPI figures were reported in-line with consensus estimates, but it appeared the market wanted more inflation because Fed fund futures up-ticked following the release (reducing the odds of a 4th rate hike from the Fed this year). The broader USD saw some selling and USDCAD initially rejected the 1.2870 level we talked about in yesterdays note. Then Trump unexpectedly fired his Secretary of State, Rex Tillerson, and the USD saw another wave of selling. This saw EURUSD spike to session highs and USDCAD to session lows. Then Stephen Poloz from the Bank of Canada took the mic at Queens University and uttered some dovish opinions about the monetary policy outlook during his speech to students on todays labour market and the future of work. The key headline was this: BOC'S POLOZ: BANK TO REMAIN CAUTIOUS, DATA-DEPENDENT IN CONSIDERING FUTURE POLICY ADJUSTMENTS. Needless to say, markets were surprised by this (considering last weeks neutral sounding BOC interest rate announcement) and so traders bought USDCAD en masse. The market surged through 1.2870 and vaulted higher to the next resistance level (1.2920s) in short order. USDCAD struggled there for a few hours and then resumed its march higher as the broader USD caught a bid and US stocks traded to new session lows (on China tariff fears). Overnight trading activity has been extremely muted, but traders now have US Retail Sales and US PPI to look forward to at 8:30amET. Chart support today checks in at 1.2925-1.2935. Resistance is 1.2985 (yesterdays NY high), and then 1.3005. Canadian dollar futures traders added to positions for the 2nd day in a row yesterday (suggesting new USDCAD longs entered the market yesterday). We think USDCAD trades range-bound to higher here given the lack of meaningful overhead chart resistance.

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Erik Bregar - Director, FX Trading
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