Better Canadian data trend continues

Back in late August, Canadian activity data was beginning to show a slightly more positive turn, but oil prices were pressing to new lows and with that the market was nearly 100% priced for another BoC cut by the end of the year. 

"Since then there is a sharp bounce in oil prices, the better data trend continue (esp. trade), and a BoC sounding closer to neutral than dovish. All of that has considerably reduced expectations for another cut from the BoC to around 25-35% for the rest of the year (as per OIS and BAX)", says RBC capital markets.

For the week ahead, the highly anticipated FOMC meeting should dominate direction for USD/CAD, a hike is expected that should be supportive for the pair. For CAD independently though, this week's Canadian data could extend the improving trend of the past couple weeks and offer the potential for some outperformance on certain crosses. 

"A solid manufacturing sales release is expected, and CPI is likely to remain stable close to target. There is a speech from BoC Dep. Gov. Agathe Côté on Wednesday entitled "Promoting Canada's Economic and Financial Well-Being", though without a press conference, much new is not expected from that.

Oil prices remain a major wildcard, and since they contain more forward looking information about activity trends in the coming months, they could easily outdo data prints this week, $43.20 and $49.70 are expected as the key support and resistance to watch in WTI. 

However, provided drastic moves are not seen, it will be harder for the market to ignore the improving data trend that now points to some upside risk to the BoC's Q3 projection (of 1.5%q/q ann.).

Trading-wise, according to RBC, avoiding binary FOMC risks and focusing on potential support for CAD elsewhere suggests,
 

• The best opportunities may be in pairs where being long CAD is recommended. 
   
• As pointed out for most of 2015, those include long CAD vs. AUD and NZD in particular. 
   
• In AUD/CAD, selling current spot levels is good, with a stop above 0.9600. 
   
• An initial target of the recent lows, and even lower levels are expected in the months ahead. 
   
• In NZD/CAD, we like selling any small rally with a stop above 0.8560 to take advantage of a long term trend lower.