FX Strategists at Scotiabank noted a test of 1.31 in the near term should not be ruled out amidst the current neutral/bullish stance.
“GDP data for Q2 showed the Canadian economy growing at a robust 2.9% (ann.) clip in Q2, a little below expectations although Q1 data was revised up modestly to +1.4%. Solid growth data reflected some mixed trends— better exports, a moderation in business investment—under the hood and the overall message here seems to be good, but perhaps not great growth. Already low market expectations for a Sep rate hike have faded further and while Oct risks still look a good shot, US-Canada short-term spreads have edged a little wider over the past week or so (gaining around 5bps in the 2-year sector). We think the CAD is closer to fair value (based on our high frequency regression model) than it has been in some time as result”.
“Spot has consolidated in a tight range around 1.30 overnight but, from our point of view, the USD regaining 1.2965 yesterday tips the near-term balance of risk somewhat higher again on the charts. We still think the broader trend is geared lower for the USD but that may not preclude a retest of the 1.31+ in the next week or two”.