USD/CAD gains are overdone – Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that despite that more cautious prognosis, USD/CAD gains are overdone, even allowing for NAFTA/tariff risks with CAD materially underperforming MXN (by 8% year to date).

Key Quotes

“The BoC retained their mild tightening bias but stressed caution and signaled more concern about trade frictions:  “Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks,“ compared with their last statement which said trade risks were, "clouding the economic outlook”.”

“Weaker data of late can be ignored too – softer Dec retail sales reflects payback for iPhone/Black Friday induced Nov strength while the outsized 88k decline in employment follows a record setting seventeen consecutive months of steady gains.”

“USD/CAD risk/reward increasingly skewing to the downside into 1.3000, especially now that BoC rate pricing has been trimmed (just two hikes now over their next six meetings).”