2 Feb 2015
USD/CAD likely to test support in the upper 1.25 region – TDS
FXStreet (Barcelona) - Shaun Osborne, Chief FX Strategist at TD Securities, expects a consolidating USD to lead USD/CAD dropping lower to test the support in the higher 1.25 levels.
Key Quotes
“Markets are already discounting another 25bps rate cut from the BoC in May—we expect the move to occur in March—but, contingent on the incoming data and the key speeches from senior BoC policy makers later in the month (Wilkins, Cote and Poloz all have speaking engagements), it is not a stretch to think that the risk of still more easing could be priced in.”
“Wider spreads might keep the CAD on the defensive if crude prices show stronger signs of steadying—Friday’s pop higher was attributed to data showing rig count declines—and while we think the inventory/supply story keeps prices depressed, it is worth noting that the gold/oil ratio does suggest that WTI prices are relatively cheap. It now “costs” 27 barrels of oil to buy 1 oz of gold—very close to the extremes for this ratio in the past 25 years.”
“Either gold is getting too expensive and will fall or crude oil is too cheap and will rise to adjust but, in recent years, firmer crude has driven much of the adjustment.”
“On the charts, the USD appear s to be consolidating—rather than reversing—recent gains but the short-term (6hour chart) suggests that a minor high may be in for the moment (the current session is building a bearish outside range signal) which might entail USDCAD dropping back to test support in the upper 1.25s.”
Key Quotes
“Markets are already discounting another 25bps rate cut from the BoC in May—we expect the move to occur in March—but, contingent on the incoming data and the key speeches from senior BoC policy makers later in the month (Wilkins, Cote and Poloz all have speaking engagements), it is not a stretch to think that the risk of still more easing could be priced in.”
“Wider spreads might keep the CAD on the defensive if crude prices show stronger signs of steadying—Friday’s pop higher was attributed to data showing rig count declines—and while we think the inventory/supply story keeps prices depressed, it is worth noting that the gold/oil ratio does suggest that WTI prices are relatively cheap. It now “costs” 27 barrels of oil to buy 1 oz of gold—very close to the extremes for this ratio in the past 25 years.”
“Either gold is getting too expensive and will fall or crude oil is too cheap and will rise to adjust but, in recent years, firmer crude has driven much of the adjustment.”
“On the charts, the USD appear s to be consolidating—rather than reversing—recent gains but the short-term (6hour chart) suggests that a minor high may be in for the moment (the current session is building a bearish outside range signal) which might entail USDCAD dropping back to test support in the upper 1.25s.”