USD/CAD: markets paying a premium for protection against strength - Scotiabank

Analysts at Scotiabank, in respect to USD/CAD, said that near-term domestic risk is limited, and the broader tone is likely to remain dominant.

Key Quotes:

"The outlook for relative central bank policy remains the primary driver for CAD, with a 2Y U.S.- Canada yield spread pushing toward 35bpts—its widest level since March.

Markets are pricing a near-certain probability of a December hike from the Fed while pricing no change for the Bank of Canada over the next 12 months.

Measures of implied CAD volatility are elevated at the upper end of their recent range, and risk reversals suggest a sizeable premium for protection against CAD weakness.

Monday’s (holiday-delayed) release of CFTC positioning data showed a continued deterioration in CAD sentiment driven by waning confidence among CAD bulls alongside a steady build in bearish short positions. We remain bearish CAD into year-end."