According to analysts at TD Securities, a firmer-than-expected Canadian inflation reading would offer a modest relief rally to the ailing loonie.
Key Quotes
“The BoC’s nominal effective exchange rate (CERINOM on Bloomberg) has dropped over 2.5% since the peak in September. The pullback reflects a few key factors like the settling of the expected terminal rate spreads between the Fed and the BoC, which now sits around 30bp based on the 2y forward OIS pricing.”
“The pullback in oil prices has not helped, though we think the link to the loonie runs through heightened two-ways risks across different asset classes. In other words, the volatility in oil and equities have a common link to the meta-theme of the end of easy money.”
“Tensions across global assets should not bode well for the loonie, though we think a firmer inflation reading could offer it temporary support into the weekend.”
“Besides the data, a possible squeeze also reflects of firming risk appetite into next week’s G20, which could offer some room for USDCAD to push towards 1.3150.”
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