23 Jun 2014
USD/CAD has been crushed - TDS
FXStreet (Guatemala) - Shaun Osbourne, Chief FX Strategist at TD Securities said USD/CAD was crushed by Friday’s stronger than expected Canadian retail sales and CPI data—falling to the lowest point seen since the start of the year and below the 200-day MA.
Key Quotes
"We do not think the CPI data has any immediate implications for monetary policy as the BoC is likely to continue focusing on the transitory nature of the rise in headline inflation rates (due to base effects, the pass through from a weaker CAD and higher energy prices)."
"At the very least, the data will ease BoC concerns about downside risks to inflation but we think it is way to early to start even thinking about rate increases. We note that spreads in the short end of the curve have narrowed a little against the USD since Friday while spreads in the belly of the curve—which are tending to correlate a little better with spot at the moment—have not moved too much and remain in generally USD-supportive territory at +9/10 bps for 5-year bond spreads. We continue to feel that the Canadian economy is struggling to pick up momentum from the US recovery and strengthening global trade—developments which will be reflected in domestic trade and employment trends going forward."
"Still, as the dust settles after the CPI report, this feels a bit like a back to the drawing board moment for us, as long-time CAD bears and we clearly have to lower our sights for the USD/CAD outlook in the near-term at least. The slide back to the low 1.07s in USD/CAD tales back about half of the rally seen from September last year—technically, a better spot for a now oversold USD to start to rally, the USD/CAD bulls in us say."
"But even if the USD can stabilize in the low 1.07s, near-term gains are liable to remain limited. A quick recovery back through the upper 1.07s would be a plus but gains may not extend that much more than the low 1.08 area for the moment."
Key Quotes
"We do not think the CPI data has any immediate implications for monetary policy as the BoC is likely to continue focusing on the transitory nature of the rise in headline inflation rates (due to base effects, the pass through from a weaker CAD and higher energy prices)."
"At the very least, the data will ease BoC concerns about downside risks to inflation but we think it is way to early to start even thinking about rate increases. We note that spreads in the short end of the curve have narrowed a little against the USD since Friday while spreads in the belly of the curve—which are tending to correlate a little better with spot at the moment—have not moved too much and remain in generally USD-supportive territory at +9/10 bps for 5-year bond spreads. We continue to feel that the Canadian economy is struggling to pick up momentum from the US recovery and strengthening global trade—developments which will be reflected in domestic trade and employment trends going forward."
"Still, as the dust settles after the CPI report, this feels a bit like a back to the drawing board moment for us, as long-time CAD bears and we clearly have to lower our sights for the USD/CAD outlook in the near-term at least. The slide back to the low 1.07s in USD/CAD tales back about half of the rally seen from September last year—technically, a better spot for a now oversold USD to start to rally, the USD/CAD bulls in us say."
"But even if the USD can stabilize in the low 1.07s, near-term gains are liable to remain limited. A quick recovery back through the upper 1.07s would be a plus but gains may not extend that much more than the low 1.08 area for the moment."