USD/CAD biased towards a neutral/bearish stance – Scotiabank

FX Strategists at UOB Group argued the current near term outlook on the pair stays on the neutral/bearish side.

Key Quotes

“In a press release yesterday, the central bank noted that market positioning was 50/50 on a rate increase, even if the street—measured via economists’ expectations—thought a rate hike was unlikely. Also, the BoC pointed out that Governor Poloz had noted after the Jul rate increase that the economy was absorbing excess capacity more quickly than had been projected. The messaging here seems rather clear; no more hand holding. Markets have been conditioned to expect only gradual policy shifts, with moves generally well-telegraphed and choreographed around press conferences. That may well be the way other central banks continue to operate but we should not expect the same from Ottawa”.

“What we should expect is more uncertainty and volatility around policy announcements. We think every meeting henceforth needs to be treated as “live” for additional rate increases and the BoC’s action suggest a lot more conviction with regard to the policy outlook than elsewhere. Short-term US-Cdn spreads remain CAD-supportive at the short end of the curve and continue to suggest fundamental equilibrium for spot below 1.20. Fade USDCAD gains”.

“Spot is in consolidation mode. The USD rebound yesterday stalled in the mid/upper 1.21s and the absence—so far—of any real recovery in the USD keeps the broader tone of this market (and key momentum signals) tilted clearly to the downside. Look for more ranging between 1.2065/1.2165 near-term but we favour fading USD gains and look for the USD slide to pick up renewed momentum below key support at 1.2050/60”.