The USD/CAD has drifted lower of late, but these dips are likely to remain temporary in nature say CIBC. Jeremy Stretch writes:
We underlined on Friday that we thought that the USD CAD capitulation which took the cross back below 1.28, clearing out positions, was constructive.
In that context it is notable that the positioning data, for the week ending May 13, revealed that net CAD longs extended for a fifteenth straight week.
Thus having seen the speculative skew in favour of the CAD extend to extremes not seen since February ’13, a positioning correction was almost inevitable as Q2 data reveals moderating economic momentum.
However, the CAD has seen some early support as oil has traded fresh year to date highs, due to discussion of an earlier than expected correction in the supply overhang - amidst higher demand and lower output. Such assumptions favour oil testing towards November highs, in the process extending some support for the CAD.
However, we would favour upcoming sessions to detail increasing divergence in US-Canada macro-economic data.
If we are correct that Canadian real economy data continues to soften in Q2, look for manufacturing shipments, wholesale trade and notably retail sales all to undershoot median expectations, expect front end spreads to continue to move in favour of the US.
Thus we would expect another test of 1.30 in upcoming sessions, as excessive CAD net longs are further pared. We would regard any near term dips, back to 1.2880, as remaining attractive.