12 Nov 2015
USDCAD: Upside risks building ahead of crude inventories - TDS
FXStreet (Delhi) - Ned Rumpeltin, European Head of Currency Strategy at TD Securities, suggests that the USDCAD price action return to full focus today as there is not a whole lot in front of them to look forward to except for the release of the DOE crude oil inventory report.
Key Quotes
“The API release earlier in the week was very bearish with a build of 6.3m bbl. If this translates into a similarly strong build in the official US data today along with much lighter draws on gasoline and distillates (as consensus expects), then there may be additional pressure in crude oil prices. Indeed, our commodities colleagues think a test towards $40/bbl may be on the cards. This should weigh quite heavily against the CAD. With our fair-value estimate trending higher to a reading of 1.3300 today, we think USDCAD can easily challenge 1.3360 (resistance sits at 1.3320) but would not rule out a move higher to test the 1.3457 multi-year high over the coming days and weeks.”
“Our year-end target is 1.37, but as we noted in a special note on Friday, we look for USDCAD to hit 1.40 by early next year.”
“With the Fed expected to lift policy in December we think the USD is near the peaking stages of its longstanding bull market but we still see opportunities to bet on additional CAD weakness.”
“One of our high conviction trades for next year includes getting long GBPCAD. We would wait for another round of liquidation of GBP longs as Fed normalization begins. As such, we would wait for a pullback to 1.96 before getting long as the BOE is expected to lift policy by mid-year. We are targeting 2.15 with a stop at 1.90, which offers a little better than a 3:1 risk/reward ratio.”
“Conversely, we think there is also an attractive RV play within the commodity-FX complex between NZDCAD. Additional easing by the RBNZ is a nontrivial risk as the terms of trade shock is likely to intensify with housing expected to slow and unfolding El Nino should weigh on the ag-intensive economy. We recommended getting short vs. the CAD several weeks ago and we look for additional downside towards 0.8600.”
Key Quotes
“The API release earlier in the week was very bearish with a build of 6.3m bbl. If this translates into a similarly strong build in the official US data today along with much lighter draws on gasoline and distillates (as consensus expects), then there may be additional pressure in crude oil prices. Indeed, our commodities colleagues think a test towards $40/bbl may be on the cards. This should weigh quite heavily against the CAD. With our fair-value estimate trending higher to a reading of 1.3300 today, we think USDCAD can easily challenge 1.3360 (resistance sits at 1.3320) but would not rule out a move higher to test the 1.3457 multi-year high over the coming days and weeks.”
“Our year-end target is 1.37, but as we noted in a special note on Friday, we look for USDCAD to hit 1.40 by early next year.”
“With the Fed expected to lift policy in December we think the USD is near the peaking stages of its longstanding bull market but we still see opportunities to bet on additional CAD weakness.”
“One of our high conviction trades for next year includes getting long GBPCAD. We would wait for another round of liquidation of GBP longs as Fed normalization begins. As such, we would wait for a pullback to 1.96 before getting long as the BOE is expected to lift policy by mid-year. We are targeting 2.15 with a stop at 1.90, which offers a little better than a 3:1 risk/reward ratio.”
“Conversely, we think there is also an attractive RV play within the commodity-FX complex between NZDCAD. Additional easing by the RBNZ is a nontrivial risk as the terms of trade shock is likely to intensify with housing expected to slow and unfolding El Nino should weigh on the ag-intensive economy. We recommended getting short vs. the CAD several weeks ago and we look for additional downside towards 0.8600.”