In their weekly strategy report, analysts at Citibank, point out the Federal Reserve may cut the Fed Funds rate by 25bp but the market probably fully priced in already. They see that if the Fed is not dovish enough as expected, may lead USD rebound and limit CAD performance.
Key Quotes:
“The July BoC was taken dovishly. But, the key to us is that risks were reemphasized. The Central Bank has not changed their policy trajectory or stance; they still stand out as neutral against dovish G10 peers. Poloz also pushed back against questions on insurance easing. Thus, it is likely that the BoC doesn’t follow the Fed with a cut, contrary to what the rates market is pricing now.”
“We think the Bank of Canada may not as dovish as other countries in G10. The Central Bank may remain neutral stance which help support CAD.”
“We expect Trump’s administration may intervene in the currency market to drive dollar lower. That may lead dollar lower in the long term and support CAD performance.”
“Canada economy may face downside risks if oil price declining further or the Canada property market softening further or the global trade talk breakdown. This may suppress CAD.”
“USD/CAD at the moment is trading below 55d MA which sits at around 1.3263, but seems having strong support at around 1.3016. CAD may trade between 1.3016 and 1.3263 in short term.”
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