CAD: Positive near-term outlook but soft oil prices and weaker macro data pose threats - ING

The near-term outlook for the loonie has turned positive but according to Viraj Patel, Research Analyst at ING, soft oil prices and weaker macro data could see USD/CAD return to 1.36.

Key Quotes

“It’s been a game-changing month for our CAD$ outlook. Risks of a perfect storm brewing over the summer period have reduced with concerns over financial stability and NAFTA renegotiations easing. On the latter, Treasury Secretary Mnuchin gave his re-assurances that US trade policies will remain “positive” for Canada’s economy.”

“Add to this a less dovish BoC and one may argue that we’ve seen a trifecta of ‘good’ news for the CAD. Both Governor Poloz and his Deputy (Wilkins) have hinted that policy rates may have bottomed; this hawkish reassessment has triggered a clear out in short CAD positions – which we note were at a 5-year high at the end of May.”

“The near-term outlook for the loonie has turned positive. However, we are wary of hastily calling for any cyclical turning point; soft oil prices and weaker macro data could see USD/CAD return to 1.36.”