CAD Weekly Outlook · 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

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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

[email protected]

Eric Theoret, CFA, CMT

Juan Manuel Herrera

FX Strategist

416.866.6781

[email protected]

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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