USD/CAD could slip back towards the low-1.2400s – Scotiabank

Eric Theoret, FX Strategist at Scotiabank, keeps the neutral/bearish bias on the par in the short term.

Key Quotes

“The Governor struck a cautious tone on Wednesday and listed a range of uncertainties clouding the economic outlook. The speech served to push back on market expectations for a relatively aggressive tightening path that had been pricing at least one 25bpt hike before year-end and another by March 2018”.

“Markets are currently pricing roughly 20bpts for December and 43bpts for March. The 2Y U.S.-Canada yield spread has narrowed accordingly, however its current level does not appear to fully justify the weakness in CAD and we attribute a good portion of Wednesday’s decline to a positioning adjustment on the part of extended CAD bulls. We maintain a constructive, medium-term CAD outlook with a year end USDCAD target of 1.20”.

“USDCAD has retraced its Asian session rally and is entering the NA session flat from Wednesday’s close. Resistance has been observed around 1.2520 and we note the importance of the 50 day MA at 1.2464. The shorter-term hourly charts are suggestive of a bearish reversal and we look to near-term weakness back toward the lower 1.24 area”.