USD/CAD: consolidating modest decline from its four week high - Scotiabank

Analysts at Scotiabank explained that USD/CAD is trading flat from Monday’s close and consolidating the modest decline from its recent four week high. 

Key Quotes:

"Broader developments remain dominant in the absence of high level domestic risks ahead of Thursday’s speech from BoC Gov. Poloz and Friday’s monthly GDP for July."

"All eyes are on Wednesday’s Fed, and the outlook for relative central bank policy remains bearish as yield spreads widen in a CAD-negative manner. OIS are steady pricing in just under 25bpts of BoC tightening for October and nearly 50bpts of tightening by March."

"CAD remains vulnerable as it continues to trade well above levels implied by our FV estimate (1.3248) using yield spreads and Canada’s terms of trade index. Measures of sentiment and positioning are bearish and we continue to highlight the notable dispersion in risk reversals with limited demand for protection against near-term CAD weakness and considerable demand for protection at longer (1Y) time horizons."