USD/CAD in a very precarious position - Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that the renewed decline in oil prices and dovish tilt from the BoC (“risks to the profile for inflation have tilted somewhat to the downside since July”) have put USD/CAD in a very precarious position.

Key Quotes

“Against that backdrop we can’t confidently argue that USD/CAD will stick to its broad 1.28-1.32 range that has held for the better part of three months.

But the USD likely trades on the back foot this week amid a steady hand from the Fed, accompanied by a dovish dot plot profile including just 1 hike this year (and possibly a couple individual dots in favour of no move in 2016) along with another 25bp lopped off the long term neutral rate.

Canadian growth prospects look perky as activity comes back on stream after the Alberta fires and as Trudeau’s fiscal stimulus kicks into gear.

On balance still feel selling USD/CAD will ultimately prove more rewarding trade but patience is required. USD/CAD a sell at 1.3250 with a tight stop.”