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Analysts at TD Securities, (TDS), said that they have entered a long USD/CAD position (spot ref: 1.3115) in their FX Model Portfolio with a target of 1.35 and a stop-loss of 1.2880.

Key Quotes:

Rationale

“With markets priced for a July BoC hike and the CAD having enjoyed a rally recently, we think much of the good news is in the price setting up for a “buy the rumour/sell the fact” outcome. We think CAD is one of the most poorly situated currencies in the G10 as trade tensions have escalated.

Indeed with NAFTA talks on hiatus, trade tariffs underway with little reprieve on the horizon and Canada running a large negative external balance, CAD’s return profile remains asymmetrically skewed to the downside. We think it is a high bar for a tone to emerge from the BoC meeting that supports CAD from here.

Now that rates are off the floor, household indebtedness high and interest payments accelerating, consumption spending will not be as robust as it was in the past, making it more difficult for the economy to obtain near-trend growth and deliver hikes in quick succession. As such, we see USD/CAD remaining north of 1.30 over the balance of the year.”

Technicals

“Daily uptrend support located near 1.3050 with interim resistance located near the 1.34 YTD high.”