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USDCAD: Trading within a broad range - TDS

FXStreet (Delhi) – Research Team at TD Securities, note that a very odd session in terms of price action for USDCAD yesterday, which made a run up to 1.3160/70 in the morning, only to come crashing down to test 1.3040 by the end of day.

Key Quotes

“In the absence of news flow or data yesterday, the swing (at least to the topside) is seemingly attributed to a rally in crude oil. But, in stepping back, we do not see yesterday’s moves as consequential but rather just noise in what we believe should be a rather benign period of trading for USDCAD over the next couple of months. There are risks to that outlook however, and entirely related to a prospective Fed hike.”

“As noted above, there is plenty on the calendar today between the data and Fed speakers. For the data, trade balance remains an important indicator but as we noted yesterday, the Bank of Canada’s rhetoric from the last meeting suggests that the risk of change in policy is not an imminent risk.”

“Nonetheless, the evolution of non-commodity exports remains a focal point in the Bank’s rebalancing story which will take years and require a persistently weak CAD to facilitate this adjustment. We are expecting the trade deficit to improve off the back of a price-driven rebound in exports. Volumes on the other hand are expected to be softer but still consistent with the rotation in the drivers of growth however.”

“If the trade data disappoints (i.e. wider deficit than expected), USDCAD will still make a run higher but should still be contained – we see resistance at 1.3170. On the downside, the 1.3050 level appears to be decent support but we think a test of 1.3000 is in the cards should the data lean negatively for USDCAD (we would still view a dip here as a buy ahead of Fischer’s comments this evening). Fair value currently sits at 1.3130. On the crosses, NZDCAD weakened by about 2% over the past session and a half following weak employment and a dairy auction. We continue to like this cross lower as we noted here.”

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