Analysts at TD Securities offered analyses on theCAD.
Key Quotes:
“The first chart breaks apart our high-frequency fair value model (HFFV) for USDCAD. It shows the beta of the 2y (US/CA) rate spread and our global risk appetite proxy. A takeaway is that the 2y rate spread beta has peaked. We think boils down to the fact that the market has more clarity on the Fed/BoC terminal rates. The BoC is priced for perfection, leaving other drivers like growth, equity flows, and the credit cycle to drive the pair.
As the credit cycle progresses, we think relative current account trends should matter. Canada is running a broad balance of payments deficit, leaving it at the kindness of strangers to fund the external gap. A real terminal rate below 1.0% probably does little to coax in foreign investment, especially as structural differences between the US and Canada has seen a shift in FDI over the past few years. The second chart notes the shift in importance from rate spreads to equities and risk appetite. It’s not to say that rates spreads don’t matter anymore; rather other things are shifting onto CAD’s radar screen.
We prefer short exposure against European crosses (EUR and NOK) and like a tactical move in AUDCAD to 0.9650 in the immediate future.”
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