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The Canadian dollar took advantage of the USD weakness and gained ground, with USD/CAD trading at the 1.30 once again. Where next? Here are opinions from RBS and TD:

Here is their view, courtesy of eFXnews:

USD/CAD: BoC On Hold This Week; Fade Any Hawkish Reaction – RBS

We expect the Bank of Canada (BoC) to leave the benchmark overnight rate steady at 0.5% at the January meeting.  We have long felt that the risks of outright easing in Canada are underpriced. While we still feel that market pricing of a 50% probability of a Bank of Canada rate hike in 2017 is offside, the most recent economic indicators relating to trade and business investment were stronger than expected, and for now are consistent with the Bank of Canada maintaining its current stance. The January meeting will be accompanied by a new Monetary Policy Report and a press conference by BoC Governor Poloz.
With the market pricing in essentially no change in rates already, any market reaction will likely be due to any change in the tone of the report.

We anticipate slightly more constructive language on the global growth picture and on trade and investment, given the latest data. But, as the Bank did in the December statement, we expect the BoC statement to lean against the increase in short-term interest rates that has come alongside a similar tightening in the US and may reference softer inflation data, still persistent labor market slack, and new macro prudential measures.

As a result, the message may come off as mixed. We would prefer to fade any hawkish reaction given our still bearish CAD view.

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USD/CAD: Attractive Risk-Reward For New Longs At Current Levels – TD

CAD is likely to benefit from any pullback in the USD.

Notably, the dollar bloc currencies are the best performers in the G10 since the start of the year. This reflects the pickup in commodity prices but also a general squeeze in positioning. Most of the indicators we track suggest that short CAD was a popular trade in the leveraged community. A pickup in Canada economic data and the recent squeeze in the dollar has helped CAD. The focus this week turns to the BoC meeting on Wednesday.  The bank is likely to keep the policy rate unchanged  but concerns about weaker inflation could offset constructive news on the growth front. A reaffirmation of the BoC’s cautious tone is unlikely to offer much support to CAD, especially since OIS rates have priced in a modest chance of a hike this year. We demur and think the market is mispricing the chance of a hike this year. Instead, we expect the BoC to hold fire in 2017 and 2018 and lean more towards a cut than a hike over the next year.

At the same time, we also note that USDCAD looks cheap to our high frequency fair value model. The pair pierced below the 2SD threshold for the first time since June 2016, increasing the scope for a bounce in the near-term.

The USD squeeze could extend the valuation gap in USDCAD but  these levels offer good risk/reward for new longs.

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