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USD/CAD Fundamental Analysis – week of February 26, 2018

Colin First

The pair has been bullish over the past week as it was helped by the strength of the dollar and the weakness in the CAD during this period. The strength of the dollar had been building over the last few weeks and it seemed as though the crux of this strength would be felt last week and that is what happened in this pair.

USDCAD Bullish

The situation was made worse for the bears in this pair as the CAD weakness also added to their agony and this is not something that they would have expected. The dollar strength was attributed to the fact that the FOMC meeting minutes for January showed that the Fed was hawkish for the future rate hikes in the US. The market is confident that there would be atleast 3 rate hikes during the course of the year and this seemed to be proven by the way the Fed was hawkish in its minutes.

USDCAD Daily

In fact, the Fed was so hawkish that it is even believed that the Fed could be looking at more than 3 rate hikes during the year and if this is indeed true, then that is likely to be extremely bullish for the dollar in the medium term. It is this anticipation that helped the dollar to move higher during the course of last week. On the other hand, the CAD was hot hard by weak retail sales data that came in much weaker than expected though some was salvaged by the inflation data which came in stronger than expected.

Looking ahead to the coming week, the stronger oil prices are likely to lend some support to the CAD but that is likely to be short lived as we believe that the oil prices have hit their range highs for the medium term. We will be having the GDP data from the US and the new Fed Chief Powell would testify and these would be watched closely by the market so that the hopes of more than 4 rate hikes are kept alive. If these events support that notion, then we could see the pair heading towards 1.28 and higher as well. For now, the bulls continue to be in control of the pair and any sort of weakness in the pair should be viewed as an opportunity to go long on this pair.

This article was originally posted on FX Empire

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