CAD range bound and down? - Rabobank

Christian Lawrence, Senior FX Strategist at Rabobank, suggests that this week’s data schedule is rather sparse in both Canada and the US and given this and the abundance of event risk for USD/CAD next week, Rabobank sees the most likely path of price action in the coming days as best described as range-bound. 

Key Quotes

“To our mind, this means that 1.34 to 1.355 is likely to be the dominant area of price action.” 

“The technical picture for USD/CAD also supports expectations of sideways trading. In terms of key levels, the 1.35 psychological handle is important on the upside before the 50% Fibonacci retracement of the January – May sell-off comes in at 1.3575. A confirmed close above there would put 1.384 into play. On the downside, 1.33 should offer strong support.”

“A look at positioning shows CAD net shorts were reduced slightly last week but positioning still remains in net short territory, albeit not at levels seen at the start of the year. Meanwhile, DTCC option positioning data shows USD 944.3mn of USD/CAD option expires at 1.35 and 851mn at 1.34 on Wednesday.”

“In terms of BoC expectations, we still expect no change to the 0.50% policy rate over the next year, while market pricing implies a 15% chance of a 25bp cut in March. That said, we are cognizant the bias will remain dovish and recent CPI inflation data served to support that view with core inflation printing 0.1ppt below consensus at 1.7% y/y while the headline came in line at 1.5%.”

“We maintain this cautious stance but of course the OPEC meeting could throw a spanner in the works if we do see concrete achievable plans.”