USD/CAD drivers are conflicted, bullish bias prevails - Scotiabank

CAD drivers are conflicted as higher oil prices are offset by widening yield spreads, said Eric Theoret, Strategist at Scotiabank, and added they maintain a bearish CAD (bullish USD/CAD) bias on the basis of relative central bank policy.

Key quotes

“Domestic policy expectations have deteriorated materially in the aftermath of Friday’s awful trade and employment data, with OIS now pricing a roughly 25% chance of a 25bpt BoC rate cut over the next 12 months”.

“Measures of sentiment are neutral and risks appear asymmetric in the current environment, with limited potential for sentiment-driven CAD gains and considerable vulnerability to weakness in the event of a rise in risk aversion.”

“USDCAD short-term technicals: bullish—USDCAD is quiet around the mid-point of its gently rising trend channel from early June. Trend and momentum indicators are neutral-bullish and short-term MA’s are bullishly aligned.”

“Near-term support is expected between 1.3120 and 1.3100, with resistance anticipated above 1.3180. A break of 1.3200 would shift the focus toward the late July highs around 1.3250 and risk a break to fresh multi-month highs at levels last seen in March.”