Weekly Foreign Exchange Wrap Up for Feb. 5 – 9, 2024

February 13, 2024

The USD and the CAD were largely unchanged this week. Risk aversion flows Monday and early Tuesday saw USDCAD repeatedly test 7 week highs near 1.3540 while the USD trade-weighted index climbed to a 3 month high. The trend changed during the North American session Tuesday and carried through to Friday as equity markets advanced to record levels while oil prices gained as much as 8%. The USD index dropped to weekly lows while USDCAD dropped to 1.3413 – a 1 week low. U.S. interest rate expectations remained unchanged from the previous week where expectations for interest rate cuts were pushed back to May. The number of cuts was also adjusted lower (between 4-5 instead of 6-7 as was priced in mid December). There is a 48.4% chance of a rate cut to 5.25% in May. There is a 42.6% chance of a 2nd rate cut in June to 5%. A 3rd rate cut in July is priced in at 35.2% while there a 31.2% chance of a 4th rate cut to 4.50% in September. Year-end expectations have a 33.2% chance of a 5th cut to 4.25%.

USDCAD initially climbed to test 7 week highs near 1.3540 three times during Monday’s session. The level was re-tested four times Tuesday before ultimately falling to 1.3448 on Thursday. The 1.3540 level is significant as it has repeatedly contained USD rallies from Jan. 17, 24, 25 and Dec. 14. The rate extended down to 1.3413 (weekly lows) after Canadian employment data was stronger than expected including a 12,300 positive revision for December. U.S. CPI inflation data also had some negative revisions and the USD trade-weighted index closed the week near the lows. USDCAD subsequently climbed to 1.3481 before falling back to hold near 1.3453/66 for the balance of Friday’s session.

Key Events: *USDCAD tests 7 week highs before falling to 1 week low *EURCAD falls towards a 4 month low *GBPCAD falls towards a 5 week low *JPYCAD falls to 16 year lows *AUDCAD falls towards a 4 month low *Oil climbs 8% from 2 week low towards 3 month highs (range $71.46 - $77.29) *USD index climbs to 3 month high before falling to 1 week low (103.94– 104.60) *U.S. 10 yr yield holds near 2 month highs (range 4.06% - 4.19%) *China Caixin services PMI: 52.7 prev 52.9 *U.S. ISM services PMI: 53.4 exp 52 prev 50.5 *U.S. ISM services employment index: 50.5 prev 43.3 *U.S. ISM services prices paid: 64 prev 56.7 *RBA (Australia) interest rate: 4.35% exp 4.35% prev 4.35% *Eurozone retail sales y/y: -0.8% exp -0.9% prev -0.4% *revised from -1.1% *Canada int’l merchandise trade: $-0.31 billion exp $1.1B prev $1.06B *revised from $1.57 billion *U.S. goods and services trade balance: $-62.2 billion exp $-62.2 billion prev $-61.9 billion *China CPI m/m: 0.3% exp 0.4% prev 0.1% y/y: -0.8% exp -0.5% prev -0.3% *China producer price index y/y: -2.5% exp -2.6% prev -2.7% *Germany harmonized CPI y/y: 3.1% exp 3.1% prev 3.1% *Canada net employment change: 37,300 exp 15,000 prev 12,300 *revised from 100 *Canada unemployment rate: 5.7% exp 5.9% prev 5.8% *Canada average hourly wages y/y: 5.3% prev 5.7%

On Tap for next week: Mon Feb 12: no key data Tue Feb 13: UK employment change: prev 73,000 UK ILO unemployment rate: exp 4.0% prev 4.2% U.S. CPI m/m: exp 0.2% prev 0.2% y/y: exp 2.9% prev 3.4% U.S. CPI ex food & energy m/m: exp 0.3% prev 0.3% y/y: exp 3.7% prev 3.9% Wed Feb 14: UK CPI y/y: exp 4.2% prev 4% Core: exp 5.2% prev 5.1% Eurozone GDP y/y Q4: exp 0.1% prev 0.1% Japan GDP QoQ Q4: exp 0.3% prev -0.7% Thur Feb 15: Australia employment change: exp 30,000 prev -65,100 Australia unemployment rate: exp 4% prev 3.9% UK GDP QoQ Q4: exp -0.1% prev -0.1% y/y Q4: exp 0.1% prev 0.3% U.S. retail sales: exp -0.1% prev 0.6% ex autos: exp 0.2% prev 0.4% U.S. retail sales control group: prev 0.8% Fri Feb 16: UK retail sales m/m: exp 1.5% prev -3.2% y/y: exp -1.4% prev -2.4% U.S. producer price index m/m: exp 0.1% prev -0.1% y/y: exp 0.6% prev 1% U.S. PPI ex food & energy m/m: exp 0.1% prev 0% y/y: exp 1.6% prev 1.8% U.S. Michigan consumer sentiment index: exp 80 prev 79 U.S. UoM 5 year consumer inflation expectations: prev 2.9%

Technically, USDCAD is neutral. The rate initially climbed from 1.3460 up to 1.3544. After repeated failures to breach this level, USDCAD declined to 1.3413 – a 1 week low. A sustained move below 1.3413 should target 1.3366 followed by 1.3300. A sustained break above 1.3493 should shift the bias to bullish and target 1.3540 followed by 1.3620.

Topside targets to consider: 1.3493, 1.3520, 1.3540, 1.3620 Downside targets to consider: 1.3413, 1.3366, 1.3340, 1.3290