30 Jan 2014
Flash: USD/CAD to remain bid - TD Securities
FXstreet.com (Barcelona) - Shaun Osbourne, Chief FX Strategist at TD Securities, argues that the USD/CAD bullishness remains intact after today's multi-year highs.
Key quotes
"USDCAD traded a little defensively around the FOMC announcement. Markets are thin and participation has tailed off in the past day or so."
"The looming month-end and Lunar New Year (starting on the 31st) might make for thinner and even more volatile trade in the next day or so and into next week. Based on equity market developments, we would expect month-end flows to be broadly USD-positive."
"Overall, we still think USDCAD trades higher and to reiterate the point, we have upgraded our forecast for USDCAD (we now look for gains through to the mid 1.17 area by the middle of this year before the market stabilizes). Regular readers will know the broader outlines of the logic here; we reached our end 2014 target before the end of January so a review of the forecast was necessary."
"We think the overall outlook remains constructive for the USD—improving growth trends and normalizing policy settings—whereas risks for the CAD outlook are tilting to the downside amid weak inflation and a dovish-leaning central bank. At the same time, the BoC is clearly not worried about the weaker CAD; quite the reverse, in fact."
"Comments from Governor Poloz last week suggested a tacit approval of the weakening seen since June and no obvious opposition to more weakness. Spreads in the belly of the curve have moved sharply in the USD’s favour in the past few months and, in our opinion, strongly support the case for a stronger USD."
"For today, we think the USD will react positively to good US GDP data—especially in the event of an upside surprise—as it reaffirms the Fed taper process. USDCAD traded to a high of 1.1199 overnight but prospects for a push higher to the 1.1265/75 area—our long-standing technical target—remain strong."
"The underlying trend is still powerful and, despite the narrower ranges and choppier trading seen in funds over the past week, the trend is showing no real sign of turning down. We see very strong support now intraday at 1.1125/30."
Key quotes
"USDCAD traded a little defensively around the FOMC announcement. Markets are thin and participation has tailed off in the past day or so."
"The looming month-end and Lunar New Year (starting on the 31st) might make for thinner and even more volatile trade in the next day or so and into next week. Based on equity market developments, we would expect month-end flows to be broadly USD-positive."
"Overall, we still think USDCAD trades higher and to reiterate the point, we have upgraded our forecast for USDCAD (we now look for gains through to the mid 1.17 area by the middle of this year before the market stabilizes). Regular readers will know the broader outlines of the logic here; we reached our end 2014 target before the end of January so a review of the forecast was necessary."
"We think the overall outlook remains constructive for the USD—improving growth trends and normalizing policy settings—whereas risks for the CAD outlook are tilting to the downside amid weak inflation and a dovish-leaning central bank. At the same time, the BoC is clearly not worried about the weaker CAD; quite the reverse, in fact."
"Comments from Governor Poloz last week suggested a tacit approval of the weakening seen since June and no obvious opposition to more weakness. Spreads in the belly of the curve have moved sharply in the USD’s favour in the past few months and, in our opinion, strongly support the case for a stronger USD."
"For today, we think the USD will react positively to good US GDP data—especially in the event of an upside surprise—as it reaffirms the Fed taper process. USDCAD traded to a high of 1.1199 overnight but prospects for a push higher to the 1.1265/75 area—our long-standing technical target—remain strong."
"The underlying trend is still powerful and, despite the narrower ranges and choppier trading seen in funds over the past week, the trend is showing no real sign of turning down. We see very strong support now intraday at 1.1125/30."