USD/CAD inter-markets: looking to Trump

USD/CAD is extending its rebound from last week’s lows in the mid-1.3000s, gaining around a cent following a recovery of the greenback at the beginning of the week.

CAD’s price action appears decoupled from crude oil dynamics as of late, turning the attention instead to the US and Canadian money markets and the yield spread differentials, particularly in the shorter end of the curve.

On the macro front, spot remains under pressure as the uncertainty over the potential policies under Trump’s administration keep lingering over the buck’s prospects, particularly on the trade side.

The recent cautious tone from the BoC reflects this scenario, adding that the domestic output gap could close at some point in mid-2018. The central bank has even left the door open for further easing in case the outlook deteriorates in response to ‘unwelcomed’ protectionism from the Trump’s administration.

All in all, a tightening bias from the Federal Reserve and a steady-to-dovish stance from the Bank of Canada are supporting the idea of a higher exchange rate in the months. Furthermore, the growing scepticism over the compliance of the OPEC-non OPEC deal and its effects on prices keep threatening CAD and adds to the upside potential in spot.