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According to Sam Bonney, Research Analysts at Nomura, a slightly positive tone at this week’s BOC meeting could provide CAD with some near-term support, but suggests that they struggle to get too positive on CAD further out.

Key Quotes

“While CAD seems to be lagging its terms of trade, it has still been a relative outperformer in the G10 FX space for the past month following the rise in oil prices. In fact, CAD is not alone in looking weak versus its terms of trade – NOK and RUB do too. In a fragile risk environment, any “convergence” motivated trades will be difficult to time.”

“Furthermore, we see limited upside to oil prices from these levels, with OPEC showing a willingness to increase supply in response to the Venezuela and Iran situations. Oil price support for CAD is likely to fade, unless we see an improvement in the Canadian data.”

“We continue to expect the USD/CAD rates differential to move higher.”

CAD may get a short-term boost but be careful how far you chase it

  • We see some modest CAD upside risks around this week’s BOC meeting. While recent data have disappointed, the BOC will still be looking to raise rates and could push the market towards a July hike at the next meeting.
  • However, we would be cautious in chasing any CAD strength too far. We may see some near-term outperformance of CAD versus AUD and NZD, but any post-BOC CAD rally against USD, EUR and JPY is unlikely to last in our view.”