FX Strategist at Scotiabank Eric Theored noted the pair’s outlook remains tilted to the bullish side in the short term horizon.
“The balance of risk favors continued CAD weakness on the back of relative central bank policy as we note the material widening in interest rate differentials, with the 2Y U.S.-Canada yield spread pushing beyond 55bpts — up 10 bpts from the April low”.
“This Wednesday’s FOMC meeting should underscore the outlook for policy divergence between a hawkish Fed and a neutral BoC. Gov. Poloz is also scheduled to speak on Thursday in Mexico City. The speech topic has yet to be announced, however the location will likely force a discussion on trade and allow the Governor to touch upon the ‘significant uncertainties’ that have featured in recent policy statements”.
“Friday’s CFTC data showed an 8th consecutive week of deteriorating CAD sentiment, and bears appear to be in control, adding $1.7bn w/w in gross short positions pushing the net short to $3.1bn. Measures of implied CAD volatility are climbing to fresh highs, and risk reversals are pricing a greater premium for protection against CAD weakness”.
“Momentum signals are bullish, DMI’s are confirming, and ADX trend strength is picking up. Short– and medium-term MA’s are bullishly aligned and we continue to highlight the absence of any meaningful resistance ahead of the mid-1.38 area. Near-term support is expected at 1.3620”.