USD/CAD remains on track for target range of 1.33/1.35- Scotiabank

Scotiabank analysts suggest USD/CAD remains bullish with the Canadian dollar not paying too much attention to the recent gains in crude oil prices. Friday’s weekly close was the highest for USD/CAD since early March and, according to Scotiabank analysts, it suggests the corrective move higher remains on track for their target range of 1.33/1.35—now more the latter than the former.

Key Quotes

“The CAD is not paying too much attention to the recent gains in crude oil prices. WTI has slipped back from the highs seen Monday near $51.60, which effectively retested the June peak in crude oil when spot was trading comfortably below 1.30. Markets remain hopeful that OPEC can instill production discipline, supporting crude oil. However, spreads at the short-end of the curve continue to nudge higher in the USD’s favour, with the 2-year US-Canada spread reaching +26bps.”

“BoC Governor Poloz provided some extensive background to reporters at the IMF meetings over the weekend, noting disappointment with the slow speed at which the economy is adjusting to the commodity shock—but making clear that the belief in a shift to business investment and export-led growth remains an essential part of the bank’s fundamental story. The governor suggested that the overall situation required a “wait and see” approach; the situation “continues to be OK. We’re creating jobs, growth is low but it’s not zero...” This perspective seems to argue for stable policy near-term at least, rather than the risk of a rate cut that the last policy statement’s reference to inflation downside risks seemed to infer. Despite firmer crude oil prices, we see spot USDCAD as generally near our fundamental equilibrium estimate.”

“USDCAD short-term technicals: bullish—spot has been trading in choppy fashion in the past few days but the broader push higher in the USD remains intact. Friday’s weekly close was the highest for USDCAD since early March and suggests the corrective move higher remains on track (for our target range of 1.33/1.35—now more the latter than the former). Short-term trend momentum is weak, however, suggesting that the USD’s move higher may remain a grind.”