14 Jan 2016
USD/CAD: diversifying towards CAD crosses - TDS
FXStreet (Guatemala) - Analyst at TD Securities explained that now that we are here, they view the 1.43/1.45 range as a medium term centre of gravity for USD/CAD.
Key Quotes:
"To be clear, there may be more USD/CAD upside in the first half of this year, but the dynamics above have us more comfortable in diversifying away from USD exposure and expressing CAD weakness on the crosses as a near-term tactical play.
In this regard, we favour being long AUD/CAD heading into the next week’s BoC decision. This appeals to us for several reasons. Thematically, we have liked this cross higher for some time as the economies are at different stages of the terms of trade shock.
We also view this as a commodity neutral trade as AUD/CAD’s 30-day and 60-day correlations to key commodities are negligible, making it an attractive cross to express a macro or a policy divergence trade. Interest rate differentials indicate it is modestly undervalued but should still be trading closer to 1.02; a rate cut from the BoC next week places upside risk.
Technically, the cross seems have already formed a base around 0.9850, and offers a healthier entry point as the cross has already punched above the 50% Fibo level from the December high. Stops should be set at 0.99 and we target 1.03."
Key Quotes:
"To be clear, there may be more USD/CAD upside in the first half of this year, but the dynamics above have us more comfortable in diversifying away from USD exposure and expressing CAD weakness on the crosses as a near-term tactical play.
In this regard, we favour being long AUD/CAD heading into the next week’s BoC decision. This appeals to us for several reasons. Thematically, we have liked this cross higher for some time as the economies are at different stages of the terms of trade shock.
We also view this as a commodity neutral trade as AUD/CAD’s 30-day and 60-day correlations to key commodities are negligible, making it an attractive cross to express a macro or a policy divergence trade. Interest rate differentials indicate it is modestly undervalued but should still be trading closer to 1.02; a rate cut from the BoC next week places upside risk.
Technically, the cross seems have already formed a base around 0.9850, and offers a healthier entry point as the cross has already punched above the 50% Fibo level from the December high. Stops should be set at 0.99 and we target 1.03."