USD/CAD appears anchored at current levels – TDS

Strategists at TD Securities assessed the prospects for the pair, while expect further tightening by the BoC early in 2018.

Key Quotes

“The Bank of Canada has raised the bar for additional rate hikes despite their claim that the output gap is now closed. The Bank is acutely monitoring risks and suggested a "cautious" approach to future rate hikes. However, above-trend GDP growth, limited cooling in home sales and rising wages and core inflation will warrant further tightening in January should data remain supportive”.

“Peak optimism on CAD looks behind us with growth moderating and rates reflecting the BoC’s “caution”. Risks look asymmetric amid NAFTA uncertainty, dampened exports from previous FX strength, and the BoC’s renewed dis-inflation concerns. A softer USD outlook and closure of the output gap still supports. This suggests USDCAD should remain anchored in the mid-1.20s overall while certain crosses may offer tactical opportunities”.