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Richard Franulovich, Head of FX Strategy at Westpac, suggests that healthier background for CAD is forming as energy prices have steadied, CAD-USD yield spreads are firming, local data remains persistently solid (all interrelated) and hopes are firming for a quick conclusion to revived NAFTA talks.

Key Quotes

“Just +41bp in BoC hikes are priced through to April 2019 (covering six meetings of which three are MPR meetings). That is light even for a Bank that continues to stress a gradual approach to hikes amid solid wages growth, inflation close to target, and decent activity outcomes.”

“A break below 1.3000 might be a bridge too far near term but if a NAFTA agreement can concluded in a few months – as signaled by key negotiators – and the BoC delivers two hikes before the year is out, USD/CAD can potentially trade meaningfully below 1.3000 later into 2018H2.”