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USD/CAD: how low can it go, 1.24's? - Scotiabank

Analysts at Scotiabank explained that the Loonie is up modestly vs. the USD, outperforming all of the G10 currencies and building on Friday’s impressive 1.7% rally, its largest one day gain since March 2016. 

Key Quotes:

"Domestic rate expectations have firmed in the aftermath of Friday’s stronger-than-expected employment data with a continued rise in wages and a fresh multi-year (near-decade) low in the unemployment rate."

"OIS are now pricing roughly 12bpts of BoC tightening for January and nearly 50bpts by July, and the 2Y U.S.-Canada yield spread has narrowed roughly 8bpts from last Thursday’s multi-month high."

"Near-term domestic risk is limited ahead of Tuesday’s trade and Wednesday’s BoC (hold expected, no MPR or press conference). Risk reversals remain relatively elevated pricing a premium for protection against CAD weakness. We look to modest near-term CAD strength."

"USD/CAD has broken its November low in the mid-1.26 area. We continue to highlight the risk of a double top, implying a decline toward the lower 1.24s. Momentum is modestly bearish and DMI’s have converged. USDCAD is below both its short-term MA’s and is flirting with its 50 day MA (1.2661). Near-term resistance is expected between 1.2720 and 1.2750." 

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