USD/CAD Daily Fundamental Forecast – December 09, 2016
USDCAD continued to come under added pressure as the oil prices began to shoot up again yesterday. We had mentioned in our forecasts that the pair will be under pressure in the short term as the oil prices continue to rise and this pressure is likely to continue for some time until the oil prices reach equilibrium. Once this happens, then the dollar strength is likely to take over again, as far as this pair is concerned, and this, along with the CAD weakness will likely push this pair up once again.
Though the CAD is strengthening at this point of time, we expect that in due course of time, once the oil prices stop moving upward, the weakness in the CAD will return as concerns over the NAFTA agreement, which Trump has vowed to re-negotiate, will rise again and this is likely to affect the trade deals that Canada has with its neighbour. Also, some part of the market continues to believe that there will be a rate cut in Canada in the middle of 2017 and as these expectations begin to rise, we will see the CAD begin to weaken further. As we have been mentioning many times over, unless there is a clear break of 1.3000, we continue to believe that this pair is in an uptrend with a medium term target of 1.4000.
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Looking ahead to today, we do not have any economic news scheduled to be released from the Canadian region and apart from the UoM Consumer Sentiment, which is unlikely to cause any major volatility, we do not have much news from the US as well. All eyes will now be trained on the US yields and also the upcoming Fed meeting next week in which the rates are expected to be hiked. This doesnt necessarily guarantee dollar strength, as this event is already priced in, but the market will be watching for guidance from the Fed on further hikes in 2017.