USD/CAD bullish near term – Scotiabank

In opinion of Eric Theoret, FX Strategist at Scotiabank, the pair is seen supported in the 1.2500 neighbourhood in the short term.

Key Quotes

“The outlook for relative central bank policy remains dominant as we highlight the slight moderation in domestic rate expectations against signs of a recovery in expectations for the Fed. OIS have softened and are now pricing roughly 19bpts of tightening for the October BoC meeting. Fed expectations are retracing this week’s Korea-driven risk-off move and Fed funds futures have almost fully recovered their recent fade. The near-term balance of risk appears to be shifting to modest CAD weakness as the 2Y spread widens back toward the 10bpt area from early August. Speculative CFTC positioning is bullish CAD with a net long at the upper end of its multi-year range”.

“USDCAD completed a key reversal on Tuesday with a bullish outside range and close above Monday’s high. The double bottom in the 1.2440s implies a measured move to the 1.2620 area. USDCAD is threatening a break above its 9 day MA (1.2535) with risk of a push to the 21 day MA at 1.2613. Near-term support is expected at 1.2500”.