USD/CAD short-term technicals remain bullish - Scotiabank

Eric Theoret, Strategist at Scotiabank, notes that technicals point to a bullish continuation in USD/CAD, while relative central bank policy appears dominant as market participants consider the intensification of the divergence narrative following last week’s disappointing Canadian GDP and CPI data.

Key Quotes

“CAD is quiet, trading flat from Tuesday’s close while testing fresh, marginal lows at levels last seen in mid-November. Relative central bank policy appears dominant as market participants consider the intensification of the divergence narrative following last week’s disappointing domestic GDP and CPI data.”

“OIS are still pricing roughly 5bpts of BoC tightening over the next 12 months and we anticipate CAD weakness as markets fade the hawkish bias back to neutral. Higher oil prices may provide a modest offset however we look to continued CAD weakness on the basis of wider U.S.-Canada yield spreads.”

“In terms of sentiment, we highlight the rise in measures of implied CAD volatility and note the commensurate build in the premium for protection against downside risk.”

“USDCAD short-term technicals: bullish—USDCAD is pushing toward the short lived highs from mid-November, threatening a break to levels last seen in late February. Momentum signals are bullish, DMI’s are providing confirmation, and short -term MA’s are bullishly aligned. We look to a continued retracement of the January May decline and highlight the next major retracement (61.8%) level at 1.3839.”