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Richard Franulovich, Head of FX Strategy at Westpac, points out that CAD remains a notable underperformer since the BoC’s more hawkish and determined message Oct 24 when they jettisoned gradualism with a more medium term focus on returning policy back to a neutral stance.

Key Quotes

“The sharp breakdown in energy prices, from 4-year highs less than a month ago to   within sight of fresh 2018 year to date lows is likely among one of the key factors. That is aggravating yet further CAD’s already notable undervaluation vis-à-vis yield spreads (EUR/CAD a notable example).”

“Democrat gains in the midterms unlikely to completely upset NAFTA 2.0, though its path through congress is tougher.”

“Markets continue to underestimate the BoC’s determination to normalise. BoC staff estimates of neutral imply +125bp in BoC hikes versus market pricing for +70bp through to Dec-2019.”