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GLOBAL FX STRATEGY | WEEKLY FX OUTLOOK
August 21, 2020
CAD Weekly Outlook
USDCAD Mini Bounce May Extend o CAD trapped between conflicting forces , likely to hold broad range
o Short-term corrective pressure builds above 1.3230/35 for USDCAD
The CAD is scratching out a modest gain against the USD over the course of the
week, running against the overall trend of USD strength in the FX market. That
is translating into some modest (so far) CAD gains on some key crosses
(EURCAD, AUDCAD) which are helpful for broader CAD sentiment. Our charts
below highlight stronger commodity prices and a decoupling in the CAD from
equity market trends versus a recoupling with WTI crude futures in the
correlation studies. Real, short-term US-Canada yield spreads have moved in
the CAD’s favour after Canadian inflation came in below expectations; this should help anchor the CAD within recent, broad ranges
at the very least. The message we can tease out of the other charts below collectively is that while the USDCAD downtrend
remains deeply-entrenched on the technical charts in the longer run, the USD is looking a little oversold and USD-bearish
sentiment, as reflected in risk reversal pricing, has moderated somewhat. The CAD rebound against the USD has perhaps edged
a little “over its skis” and some consolidation may be required before the CAD can advance further.
Conflicting forces (commodities , spreads and the USD-bearish longer run trend on the one hand and sentiment and short-term
oversold conditions for the USD on the other) suggest more range trading for USDCAD in the week ahead, with funds perhaps
pivoting around the 1.32 point. Our week-ahead model suggests modest upside risks for USDAD towards 1.3245/50 within a
broad range of 1.3060/1.3440. We still think there is fundamental value in the CAD near the low/mid 1.33 area currently and would
view moderate USD gains as a USD selling opportunity still. Event risk next week, centered on the Kansas City Fed’s (virtual)
Jackson Hole symposium (gathering central bankers from around the globe), may curtail volatility in the early part of the week.
Calendar highlights for the week ahead: -
o Q2 Current Account data and Jun/Q2 GDP reports are the data highlights for the coming week in Canada. Scotia
Economics ’ GDP Nowcast tracking indicates Q2 GDP contracted 38.7% (Q/Q, SAAR) which is bang on the current market
consensus. If the data run is light, there is an abundance, relatively speaking, of BoC appearances coming up, however.
Shaun Osborne
Chief FX Strategist
416.945.4538
Eric Theoret, CFA, CMT
Juan Manuel Herrera
FX Strategist
416.866.6781
FOLLOW US ON TWITTER @SCOTIABANKFX
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GLOBAL FX STRATEGY | WEEKLY FX OUTLOOK
August 21, 2020
DG Schembri speaks Tuesday (comments at 13.30ET on the Bank’s website), Senior DG Wilkins speaks on the monetary
policy framework Wednesday (10ET) and Governor Macklem participates in a panel discussion at the Jackson Hole event
on Thursday at 11.15ET (comments on the Bank website at 11.15ET).
o In the US, August survey data will be of interest through the course of the week (Consumer Confidence, the Richmond
Fed, KC Fed activity indices and Chicago PMI) will be scrutinized amid some signs that the US rebound is losing
momentum. Durable Goods for July (Wednesday), the second reading of Q2 GDP (Thursday) and Friday’s Personal
Income & Spending data feature over the course of the week. The KC Fed’s Jackson Hole symposium (Navigating the
Decade Ahead: implications for Monetary Policy) will attract a lot of attention, given the focus on how central bank policy
will evolve in the next few years. There are few details available regarding the schedule for the proceedings this year at
the moment. Fed Chairman Powell is, however set to speak on the Fed’s monetary policy framework review on Thursday,
according to the Fed.
From a technical point of view, short-term bear pressure on the USD is abating and additional gains through the 1.3230/35 area
could put the USD on track to test strong, weekly downtrend resistance (1.3345 currently) in the coming week. Given that the daily
and weekly trend oscillators remain bearishly aligned against the USD still, the broader downtrend remains well-entrenched on the
charts, as reflected in the moving average crossover model chart above. We are therefore doubtful that USD rallies can extend too
far at present and still favour looking to fade USD rallies. Risks will tilt towards a more extended USD recovery if USDCAD gains
extend above 1.34 (40-day MA at 1.3398 currently) over the next week.
NEXT WEEK'S NORTH AMERICAN CALENDAR
Day Country Release Period Consensus Last
Mon MX Bi-Weekly CPI 15-Aug 0.15% 0.14%
US Chicago Fed Nat Activity Index Jul 3.88 4.11
Tue US FHFA House Price Index MoM Jun 0.4% -0.3%
US S&P CoreLogic CS 20-City YoY NSA Jun -- 3.69%
MX Current Account Balance 2Q -- -$982m
MX International Reserves Weekly 21-Aug -- $192531m
US Conf. Board Consumer Confidence Aug 93.2 92.6
US New Home Sales Jul 775k 776k
US Richmond Fed Manufact. Index Aug 10 10
CA BoC DG Schembri Speaks
US Fed’s Daly Takes Part in a Panel
Wed US MBA Mortgage Applications 21-Aug -- -3.3%
MX Economic Activity IGAE YoY Jun -- -22.73%
MX GDP NSA YoY 2Q F -- -18.9%
US Durable Goods Orders Jul P 4.0% 7.6%
US Durables Ex Transportation Jul P 2.5% 3.6%
CA BoC Sen DG Wilkins Speaks
MX Mexican Central Bank Inflation Report
Thur CA CFIB Business Barometer Aug -- 61.3
MX Trade Balance Jul -- 5546.7m
CA Current Account Balance 2Q -- -$11.10b
US GDP Annualized QoQ 2Q S -32.50% -32.90%
US Initial Jobless Claims 22-Aug -- 1106k
US Continuing Claims 15-Aug -- 14844k
MX Central Bank Monetary Policy Minutes
US Pending Home Sales MoM Jul 5.8% 16.6%
US Kansas City Fed Manf. Activity Aug -- 3
CA BoC Governor Macklem at Jackson Hole
Fri CA GDP MoM Jun 4.9% 4.5%
CA GDP YoY Jun -- -13.8%
CA Quarterly GDP Annualized 2Q -37.8% -8.2%
US Personal Income Jul -0.1% -1.1%
US Personal Spending Jul 1.5% 5.6%
US MNI Chicago PMI Aug 51.9 51.9
US U. of Mich. Sentiment Aug F 72.8 72.8
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GLOBAL FX STRATEGY | WEEKLY FX OUTLOOK
August 21, 2020
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