USD/CAD neutral in the short term – Scotiabank

FX Strategists at Scotiabank sees the pair could face further consolidation ahead of another leg lower.

Key Quotes

“The US-Canada 2Y spread—which has been the only game in town for the CAD recently—continued to narrow yesterday, following BoC Dep Gov Lane’s comments suggesting that the BoC was closely watching the impact of higher rates and the CAD on the economy”.

“The spread story will not be going away any time soon; the focus on the Fed today means that more movement in the yield gap is possible, depending on the policy messaging from the FOMC”.

“However, on the basis of the current spread of around 17bps, a little under 10bps narrower than the peak gap last week, our FV model suggests USDCAD equilibrium of 1.2141 today. Note WTI remains well-supported above $50 and adds marginal support to the CAD Tone”.