USD/CAD: Reversion & Seasonals Point To USD/CAD Upside Risk Through 1.36 – BofAML

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USD/CAD has mixed forces pulling it to all directions. What are the levels to watch?

Here is their view, courtesy of eFXdata:

Bank of America Merrill Lynch Global Research discusses USD/CAD outlook and maintains a bullish bias, on the back of unsustainable Fed vs. BoC policy pricing and bullish seasonals.

“Since early last year, there have been two prior instances of relative Fed vs. BoC pricing declining below -20bp as now: May 29, 2018 and September 28, 2018. In both instances, USD/CAD resolved higher after 20 trading days for an average return of about 2% (a bit more than 3 true ranges). With a z-score of 1.0, this result looks statistically significant.

Reversion in BoC vs. Fed pricing back to flat should be worth approximately the same amount of upside in USD/CAD this time around via the interest rate channel, particularly as trade tensions have increased, not decreased. Our out-of-consensus forecast published back in February calls for USD/CAD to revisit 1.36 levels through midyear, reflecting persistent structural supply/demand flow mismatches heightened by prolonged trade policy (emphasis: USMCA) uncertainty,” BofAML notes.

“We continue to see upside USD/CAD risks given unsustainable Fed vs. BoC policy pricing and bullish seasonasls,” BofAML adds.

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.