USD/CAD is still about trading the ranges - Rabobank

Christian Lawrence, Senior Market Strategist at Rabobank, notes that the USD/CAD returned to the 1.32-1.34 range and suggests that USD/CAD is still about trading the ranges: 1.30-1.32, 1.32-1.34 and 1.34-1.36.

Key Quotes

“Since the latter half of September 2016 we have not seen USD/CAD close outside of 1.301.36 and we don’t see that changing in the coming months. This range is broadly in line with 1.2897 and 1.3575 which are the 23.6% and 50% Fibonacci retracement levels from the January to March 2016 sell-off.  It is also worth noting that the 50% retracement level also coincides exactly with the high seen 3 months ago on 28th December. Of course, the real question for the coming weeks is what sub-range will we see? To our mind, 1.32-1.34 is likely to dominate as we see WTI edging back up towards the 50 handle, while the interest rate spread is likely to be relatively flat in the coming weeks.”

“In terms of momentum, USD/CAD technicals show the pair firmly in ‘neutral’ territory which comes as no surprise given the range-bound nature of the pair at present. Although the data set is relevant for the week ending last Tuesday 21st March, it is important to highlight a notable switch in CAD CFTC positioning which flipped from net long CAD to net short CAD for the first time in 9 weeks and at the most extreme seen in the past year. This is the largest change in CAD net speculative positioning since the data began back in 1993. This shift in positioning is also likely to cap CAD weakness somewhat but we expect Friday’s release of CFTC positioning data for the period ending today will see a pullback to a less stretched scenario.”

“In the week ahead, January GDP data on Friday 31st March will be the highlight with expectations of another month of 0.3% growth resulting in a year-on-year print of 1.9%. Our forecast for 2017 as a whole is for growth of 1.8% y/y. Domestic data have generally improved over recent months but we concur with Governor Poloz who recently noted “It would be odd to forget about all those downside risks because a couple of data points came in a little bit better than expected.”