USD/CAD: outlook remains bullish, despite holiday markets spanking the dollar - Scotiabank

Despite weakness in the dollar this week in hliday markets, analysts at Scotiabank suggested that the short-term technicals are still bullish, calling the bottom right so far.

Key Quotes:

"USD/CAD has retreated modestly from Wednesday’s fresh multi-month high around 1.36, tumbling back toward the lower 1.35 area with risk to the 9 day MA at 1.3485.

We maintain a bullish medium-term bias, looking to USDCAD gains toward the 61.8% Fibo retracement of the JanuaryMay decline at 1.3839."

"Interest rate differentials remain a drag for CAD as we note Wednesday’s fresh closing high in the 2Y U.S.-Canada yield spread, hitting 47bpts its highest level since January 19—the day CAD hit its multi-year closing low.

We continue to highlight the disconnect between the market’s pricing of 5bpts of tightening over the next 12 months and the Bank of Canada’s emphatically neutral tone. Markets have also yet to fully price the Fed’s three hike path for 2017. We see further CAD weakness on the basis of relative central bank policy and look to a Q2 17 low at 0.71 (USDCAD 1.40)."