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CAD expected to remain soft - TD Securities

FXStreet (Łódź) - The TD Securities team of experts suggest that the strong dollar tone will dictate the direction in USD/CAD.

Key quotes

"The CAD will do the 'usual thing' of late and take its cue from the USD—and other markets."

"Oil prices have stopped falling but, below $85/bbl., WTI remains close to its lowest since 2012; concerns about slow global growth and ample supply will keep the outlook for commodities more defensive, the more so as the Fed’s QE programme winds up at the end of the month and the liquidity spillover that has benefitted some (e.g.., gold) markets will dry up."

"The CAD is not correlating well with commodities at the moment. Our matrix on page 1 shows the current, rolling 1-month correlation with commodities is 35% and the not that much higher with crude oil (38%)."

"But weaker commodities will weigh on CAD sentiment and help keep the CAD soft. Persistent weakness will work negatively into the CAD via Canada’s terms of trade."

"On the charts, USDCAD’s inability to trade below 1.11 on a sustained basis so far in October has seen spot rebound after trading somewhat heavily last week."

"Despite weak price action last week and a soft-ish close Friday, spot has recovered so far this week to push on to the mid 1.12s again."

"We are not persuaded that new highs for funds are warranted at this point but the broader USD tone—strong—will dictate the direction here. We rather think seasonal pressures and the extended USD run up in the past few months favours some consolidation and (temporary) USDCAD retrenchment into the end of the year."

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