USD/CAD could reach 1.20 in Q4 – Scotiabank

Eric Theoret, FX Strategist at Scoatiabank, sees the pair grinding lower towards the 1.20 area by year-end.

Key Quotes

“The 2Y U.S.-Canada yield spread is pushing deeper into negative territory and now beyond –20bpts”.

“Market-based expectations for the BoC have firmed aggressively and OIS are pricing 31bpts for the January meeting. Pricing for the subsequent hike has moved forward from late 2018 and is now nearly priced for July”.

“Scotiabank Economics has revised the Bank of Canada forecast and now has the policy rate ending 2017 at 1.25% (one more 25bpt hike) and 2018 at 1.75% (hikes in Q1 and Q3). We have revised our USDCAD forecast, looking to 1.20 for Q4 2017 and 1.15 for Q4 2018”.

“Both trend and momentum indicators are decidedly bearish and the RSI is in oversold territory. USDCAD appears set to test the midpoint of the range from 2011. There are no major support levels ahead of 1.20 and the 2015 low at 1.1920. A break would open up the risk of a push to 1.1620. Near-term resistance has been observed around 1.2120”.