USD to CAD View: “We would not expect a rally through 1.3220”

US dollar vs canadian dollar

The Canadian dollar has been under pressure against the US dollar since the 3rd of May. Of late the uptrend has slowed and appears in danger of stalling. Giving his views on the outlook is Jeremy Stretch at CIBC Markets who writes:

Continued moves in front end spreads, in favour of the US, has seen USD CAD attempt to trade towards overhead resistance at 1.3219, in line with April 5 highs.

Front end spreads (2-year) have moved by almost 20bp, in favour of the US since April 29, as investors continue to recalibrate US rate expectations.

The consequence of the move has been that the long run trend of speculative investors accumulating CAD has come to an end.

With rate spreads set to maintain a bias towards the US, (in line with the long Canada vs US 5 year trade recommended by rates strategist Richard Gilhooly) as Q2 data is set to remain firmly in favour of the US, underlines our trading bias of looking for USD CAD to head back towards key overhead targets at 1.37.

However, ahead of the BoC statement we would not expect a rally through 1.3220 unless external variables, such as the oil price, prove to capitulate.

We would continue to regard USD CAD dips as providing value, indeed unless we close back below 1.3015 we see little reason to caution against maintaining topside targets