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USD/CAD Weak Crude Limits CAD Bounce – TD Securities

FXStreet (Barcelona) - FX Strategists at TD Securities view that a weaker crude should weigh a little more obviously on the CAD as the 1-month correlation is the highest this month.

Key Quotes

“CAD demand on the crosses—GBP, JPY—is helping keep funds pinned back against the 1.13 area and we continue to think the near-term risks are geared lower for the USD."

"But scope for significant or sustained CAD strength is limited—mainly, for the moment, by the continued softness in crude, with Brent slipping to a new 4-year low below $80/bbl and WTI holding precariously a little above the early November low of $75.84.”

“Crude prices are poised to remain under pressure amid ongoing supply worries and, as we highlighted yesterday, it is hard getting too constructive on the CAD as a consequence.“

“CAD/crude correlations are starting to pick up—as our correlation matrix above highlights. The current 1-month correlation with crude stands at 64%, in fact, which is the tightest since mid 2013. Weaker crude should weigh a little more obviously on the CAD.”

“And with spreads also starting to exert a more positive influence on the CAD again, we think the downside potential for USD is perhaps even more limited; if anything, USDCAD perhaps should be a fair bit higher.”

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