USDCAD Could Break From Range - Will It Target 1.0340 Or 1.0676?

SEP 11
CAD Housing Starts (AUG) (08:15 EST; 12:15 GMT)
CAD Int?l Merchandise Trade (JUL) (08:30 EST; 12:30 GMT)

Expected: 222.0K
Expected: C$5.0B

Previous: 215.6K
Previous: C$5.3B

How Will The Markets React?
On Tuesday, Canadian economic data is expected to be mixed as housing starts are estimated to rise to 222.0K while the international merchandise trade balance is predicted to narrow to C$5.0 billion. Both figures have the potential to be market-moving, but traders will likely focus on whichever release shows the biggest change from the month prior or analyst estimates. Housing starts should remain relatively resilient, as the Bank of Canada has not been extremely aggressive in their monetary policy actions over the past year. As a result, interest rates in the country have not moved significantly higher, keeping borrowing costs steady and housing relatively affordable. Furthermore, a booming export sector has led workers to relocate to the oil-rich Alberta region, driving growth in the housing sector and keeping the labor markets tight. However, exporters could be feeling the pain of the rapid appreciation of the Canadian dollar in the first half of the year, and the release of the trade balance will help gauge that as a marked narrowing of the surplus may indicate that demand for Canadian products is lagging. Moreover, shipments out of Canada could be hurt as the country?s biggest trade partner - the US - experiences a broad economic slowdown.
Bonds - 10-Year Canadian Government Bond Futures
Risk aversion in the Canadian markets has kept demand for CGB?s strong, as the contracts targeted resistance at 113.25 today. However, intraday charts show CGB?s in an ascending wedge, leaving price likely to correct lower as a consolidation of last week’s advance. Thereafter, CGB?s may stage another recovery targeting 113.50/68. The bonds face event risk from Tuesday?s Canadian economic data, as a pick up in housing starts could help offset a narrowing of the international trade balance and lead CGB?s lower.
10-Year Canadian Government Bond Futures (Intraday Chart)

The USDCAD pair remains trapped within choppy range trade above 1.0465 as traders continue to weigh the impact of a US economic slowdown on the Canadian economy. The failure to break back below this support level since early August keeps the bullish bias for the pair intact, but sharp movements will likely need some sort of fundamental impetus. On Tuesday, Canadian housing starts and the international trade balance will be released, and if one of these indicators shows a surprising result, USDCAD could be sent reeling. However, the status of the trade balance could be the bigger market-mover, as a marked decline in export growth on the back of a strong Canadian dollar could send USDCAD up towards 1.0676 if price can push through near-term resistance at 1.0587. On the other hand, a pick up in the trade surplus along with resilient housing starts could lead USDCAD lower, with a break of 1.0465 negating the bullish bias for the pair as price would likely take aim on the lows at 1.0340.
[B]USD/CAD (Intraday Chart)

Equities - S&P/TSX Composite Index
Risk aversion in the Canadian markets has kept the S&P/TSX Composite Index pulling back from Fibonacci resistance at 13,812, especially as concerns mount that global growth may slow and curb demand for energy and industrial metals. If the Canadian trade surplus narrows on Tuesday on the back of softer export demand, losses for the S&P/TSX may only be exacerbated. Support looms below at the 200 SMA at 13,413, but that level has only proven to be mildly effective in the past and if we see equity markets in the US plummet, the S&P/TSX could easily drop sharply as well. On the other hand, resilient trade data and strong housing starts could help push Canadian equities up towards 13,800, especially if global shares work higher as well.
S&P/TSX Composite Index (Daily Chart)

Written by Terri Belkas, Currency Analyst for