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USDCAD was down 0.2% to 1.3229 overnight, analysts at TD Securities note that it will be a busy week for Canadian data next week, with the first look at real activity data for December.

Key notes

  • While markets have (rightly) discounted the risk of a BoC cut in March, roughly a 40% chance of a cut is priced for April which leaves room for swings in either direction depending on the evolution of the data.
  • Risk/reward considerations favour steepeners over outright positions in CAD rates.
  • We expect manufacturing sales to decline by 0.1% in December (market: 0.7%) owing to a combination of weaker auto production and lower factory prices.
  • While exports were up 1.9% m/m during the month, the increase was led by raw materials (crude oil, minerals) and exports of manufactured goods were actually lower on the month.
  • Manufacturing volumes should post a mild increase, although we do not expect much of a contribution to industry-level GDP growth.