Canadian Climb

Aside from the 20-30% decline in the price of cryptocurrencies, which may be occuring due to falling spreads and eroding arbitrage opportunities, prospects for the year ahead are improving for the loonie as domestic data turns higher. The Canadian dollar was the top performer Thursday while the Swiss franc lagged. In a last minute decision, the Premium Insights issued a short on GBPUSD 15 minutes before yesterday's release of Canada retail sales and CPI. The pair fell 100 pips as both figures overshot expectations. Recall that CAD (not USD) was the highest performing currency of 2016.Canada GDP and US PCE report are both due at 8:30 EST (13:30 GMT/London).

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The CAD gains on Thursday came after a rise in the CPI and a sizzling retail sales report. Prices rose 2.1% y/y compared to 2.0% expected and most core measures climbed. Retail sales rose 1.5% compared to 0.3% expected.

Poloz on the weekend said that the note about 'caution' in the BOC statement doesn't mean they won't hike so the market will be forced to stay on guard in the weeks ahead. Oil prices are also nearing the best levels of the year.

Additionally, China could help lift all commodity prices next year and on Friday the China Daily reported that the PBOC is not expected to raise interest rates in 2018.

The problems for the Canadian dollar include the huge gap in Canadian oil, which is still trading at a $26 discount and NAFTA worries.

The USD/CAD chart tells the story as the pair ranges between 1.2650 and 1.2915. A break on either side will be increasingly important. The risk is that it comes in low liquidity in the next week or so. In that case, it might be best to wait until the dust settles.

It's a similar story in AUD/USD as it rose above the 200-day moving average Thursday and is now threatening the November high. That's a greenlight but a whopping $3.5B in expirations at 0.7700 on Friday could pin it down and then it's into the year-end doldrums, when signals can be deceiving.

To close out the week, watch for the November US PCE report and Canadian GDP for October. In the US report, eye the personal spending metrics and for any signs of wage growth or inflation.