Home USD/CAD: The Trump-Trade Squeeze Hypothesis – TD

USD/CAD: The Trump-Trade Squeeze Hypothesis – TD

The Canadian dollar enjoyed  the positive GDP number  and the dollar fell on Trump. What’s next?

Here is their view, courtesy of eFXnews:

A healthy Nov GDP report underpinned CAD.  The headline beat expectations coming in line with TD’s expectations of a 0.4% m/m gain. Under the hood, the goods-producing industries led the gains while services made a modest contribution. The improvement helped to fully reverse the slowdown from the prior month.

Even so, this report is unlikely to provide much relief to the BoC.  The pickup in growth is coming from a very low base and the upside surprise largely reflects diminished expectations rather than an acceleration in growth. Indeed, the second chart shows indices that track economic growth revisions, highlighting that Canada has seen the sharpest deterioration in expectations of any of the major countries over the past year.

This leaves us to believe that the BoC will want to see more evidence of a sustained pickup in growth before changing its tone on monetary policy. Equally important, core inflation continues to decelerate, suggesting excess capacity in the Canadian economy.

In regards to CAD, we suspect the price action hinges on a mix of the sharp USD selloff and better data in Canada.  We lean on the Trump-trade squeeze hypothesis and note that USDCAD is tracking 2sd cheap on our model.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.