CAD: How High Can CAD Fly With An October BoC Hike? -TD

The Canadian dollar got a big boost this week from two BOC speakers, providing a hawkish tone. What does it mean in practice?

Here is their view, courtesy of eFXnews:

TD Research notes that BoC ‘s Wilkins speech this week saw USD/CAD mark one of its biggest one-day drops in the past year and this price action reflected a squeeze in market positioning and the rapid repricing of a BoC hike sometime in H2.

“The prospects of the Bank to remove excessive stimulus later this year favors a more upbeat outlook for CAD….We expect CAD to outperform in the dollar bloc as the RBA and RBNZ lag the BoC (and terms of trade favor energy) but we are cautious about extrapolating the rally beyond a select group.

Against the greenback, an H2 BoC rate hike will have to compete with our expectations of another Fed hike alongside balance sheet reduction,” TD argues.

All told, this backdrop  favors selling the USDCAD on rallies but is also  unlikely to see the pair make a convincing break below our expectations for a move back to 1.30 by year end,” TD advises.

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