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Analysts at MUFG Bank, point out the loonie (CAD) is being supported by a sharp bounce back in the Canadian economy. They see the USD/CAD consolidating between 1.3000 and 1.3400.

Key Quotes:

“The CAD continues to outperform amongst G10 currencies with USD/CAD still threatening to break below the 1.3000-level ahead of the US Presidential election. According to our calculations, the CAD has displayed the most bullish momentum over both the last three weeks and three months. However, we would argue that upward momentum is not stretched enough to provide a strong signal that there’s a high risk of a reversal lower. USD/CAD is currently testing support at the 1.3000- level. It likely to prove a tough nut to crack without a fresh catalyst given the pair hasn’t traded below on sustainable basis since the 1H 2018. The most likely scenario in the run up to the US Presidential election is that USD/CAD continues to consolidate between 1.3000 and 1.3400.”

“We do not expect next week’s BoC meeting to reinforce the CAD’s momentum sufficiently for USD/CAD to break below 1.3000. The Canadian dollar’s upward momentum has been supported by the robust initial bounce back for Canada’s economy following the COVID shock.”

“We would caution that CAD strength relative to the USD is starting to look overdone based on short-term fundamental drivers such as the price of oil and yield spreads. USD/CAD is likely to continue to find it difficult to break below 1.3000.”