USD/CAD: Upside potential to be capped at 1.34 levels - Westpac

Richard Franulovich, Head of FX Strategy at Westpac, explains that the CAD continues to underwhelm despite  notable ongoing rise in yield support against key peer currencies.

Key Quotes

“The sharp decline in energy prices and sudden doubts about the passage of the revised NAFTA deal through a Democrat led Congress are the latest source of angst for the currency.”

“Democrat demands for stronger enforcement mechanisms for labour and  the environment can be assuaged and shouldn’t upend the deal, though it casts doubt on the prospects for a signing ceremony at the end of this month.”

“The allure of the 2nd highest 2yr yields in the G10 should limit USD/CAD upside potential to no more than 1.3400, key resistance at the 2018 highs. Moreover, markets remain complacent on the BoC’s determination to normalise. BoC staff estimates of neutral imply +125bp in BoC hikes versus market pricing for +70bp through to Dec-2019.”