USD/CAD: Divergent signals from oil prices and the BoC – Westpac

Oil prices and the BoC continue to send notably divergent signals for USD/CAD, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“The BoC should carry more sway but it would be prudent to await a bigger bounce in USD/CAD toward 1.34/1.35 before leaning into fresh shorts.”

“Both Gov Poloz and Dep Gov Wilkins have hinted strongly that the 50bp in oil related insurance cuts delivered in 2015 has effectively overstayed its welcome now that the adjustment to the terms of trade hit is near complete and growth is broadening across regions and sectors. Against that OIS markets discount a lesser 40bp in hikes by Feb-2018 and leveraged investors remain net short CAD a hefty 72k contracts.”

“The BoC could have easily waited a month (12 July) to signal the shift, signaling an urgency that borders on a preparedness to hike at that meeting.”