USD/CAD keeps the bullish outlook – Scotiabank

FX Strategist at Scotiabank Eric Theoret noted the pair’s outlook still remains on the bullish side in the short term.

Key Quotes

“Relative central bank policy is dominant as market participants assess the rapid firming in expectations for Fed tightening, driving a surge in the 2Y U.S.-Canada yield spread above 50bpts to levels last seen in January 2016 when USDCAD was trading in the low 1.40s”.

“Interest rate differentials are set to remain a key near-term driver as we look to Wednesday’s 10am ET BoC policy decision (widely anticipated hold, statement only, no MPR or press conference) with a focus on the statement tone. We anticipate a focus on low inflation, material excess capacity, and labor market slack in an effort to highlight the narrative of policy divergence that Gov. Poloz has sought to communicate”.

“USDCAD has met the 1.3320 near-term target identified Tuesday and its gains have pushed it back to the lower bound of the ascending trend channel from May 2016. Momentum signals are bullish, DMI’s are providing confirmation, and short-term MA’s are bullishly aligned. We look to further gains through 1.3380 and the Jan 20 high toward the late December high around 1.36”.