USD/CAD to move higher on BoC and data – TD Securities
Analysts at TD Securities, point out they have enter a long position in USD/CAD with a target of 1.3300 and a stop-loss of 1.2890.
“While Governor Poloz kept his cards close to chest at yesterday's fireside chat, we think the data will eventually force his hand and cut by April. The positive benchmark revisions to GDP in November revealed a better domestic backdrop. The subsequent improvement to the projected output gap looks to be offset by a poor start to Q4 however.”
“USDCAD has thus far shrugged this off, but our tracking implies that Q4 annualized growth is close to contraction - a far cry from the BOC's forecast of 1.3% in the October MPR (Monetary Policy Report). We think markets have underappreciated this and a BOC response by Q2, but we think this could come to a head by this month's industry-level GDP report. The offset is 2yr rate spreads, which suggests the pair should trade lower from here, though the beta has appreciably deteriorated for some time (like oil). CAD has also dropped out of favor in our MRSI basket and our positioning dashboard suggests longs remain after a false build in December due to the BOC's hawkish tune at the meeting.”