USD/CAD has retraced around 70% of the September rally with USD under pressure across the board in October. The loonie is firmly at the mercy of the USD leg which in turn is trading off the back of risk sentiment. There is little reason to expect that dynamic to change heading into the election and for that reason, economists at Rabobank expect USD to retrace some of its recent losses as volatility rises heading into November 3.
Key quotes
“Our bias remains for a USD bid in Q4 that should see the greenback recoup some of its recent losses. This, driven by a rise in risk aversion around the election, the potential for a second wave to spook US markets and the likely downturn in activity we expect to see in Q4. It is also worth noting that seasonals favour weakness in CAD in late November early December.”
“Although we would not claim to know which way the election will go, we are of the view that polls are likely overstating Biden’s lead and the election could well prove much closer than many anticipate which is likely to add to the vol picture in early November and see USD/CAD retest the 1.33 level.”
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