USD/CAD: outlook is mixed according to options, BoC to hike 25bps- Scotiabank

Analysts at Scotiabank noted that the CAD is quietly consolidating for a second consecutive session and trading just below Monday’s four-month high. 

Key Quotes:

"The outlook for relative central bank policy appears to be stabilizing and we continue to highlight the absence of domestic releases scheduled ahead of Friday’s trade and employment data."

"OIS are steady pricing in roughly one 25bpt BoC hike for October and another by January."

"Canada’s terms of trade are deteriorating on the back of widening oil price differentials as Western Canada Select threatens its September lows while Brent and WTI hover just below their recent multi-year highs."

"Our FV estimate for USDCAD using yield spreads (2Y, 5Y) and Canada’s terms of trade index implies a current spot level closer to the mid-1.31s. Measures of sentiment are mixed as the options market suggests limited demand for protection against near-term CAD weakness while pricing a sizeable premium for longer time horizons."