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USDCAD: Weighed down under pressure - TDS

FXStreet (Delhi) – Research Team at TDS, note that it was a big day for USDCAD in yesterday’s afternoon session in New York which saw a collapse from 1.3400 to 1.3310 and the selloff has resumed in the overnight Asia session towards 1.3250 but has now stabilized around 1.3280.

Key Quotes

“For some time we have noted the valuation wedge between our fair value estimate and spot. FV has collapsed from 1.3085 yesterday to 1.2910 at today’s open. Again, the primary reason for this gap is 2yr spreads.”

“We highlighted this week that we think there is a recycling of flows from EM into some of the G10 pairs like USDCAD. Indeed, USDCAD and ADXY have been closely correlated and the Canadian 2yr note has been under pressure.”

“It is not uncommon to see such a significant wedge between FV and spot but at certain thresholds do we see such a gap begin to narrow. Note that we are at that point that would suggest further downside in USDCAD.”

“The data in Canada has unfolded positively recently but we emphasize that the CAD has to remain persistently weak to sustain the turn in the data and offset the economy’s competitive disadvantage (unit labor costs on an aggregate basis continues to rise).”

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