13 Jun 2014
USD/CAD overview; sensitivity to oil - BMO Capital Markets
FXStreet (Guatemala) - Stephen Gallo, European Head of Currency Strategy at BMO Capital noted the conditions surrounding the USD/CAD.
Key Quotes:
"Funds has traded in very tight Asian and London ranges, from basically 1.0850-1.0860. On balance, Poloz’s remarks yesterday are net supportive for USD/CAD, and they have reduced the risks of a weekly close in the 1.0800-1.0820 range. However, the BoC’s attitude towards the CAD remains very timid, and this can be seen in the changing relationship between USD/CAD and the oil price."
"Since there has been no major impetus for a weaker CAD from the BoC, the pair’s sensitivity to the oil price has been picking up. Using a three-month window of data, today’s ‘predicted’ USD/CAD level based on recent movements in WTI alone is currently 1.0840."
"That is a 60-pip drop from yesterday’s predicted value, and it’s the first 1.0800 handle since February. Our model’s ‘fair value’ has also dropped to 1.0910 from 1.0960 at the start of the week."
"Data impact on USD/CAD will still be fairly limited with the June FOMC approaching, but in light of tepid retail sales data yesterday, today’s US PPI data will help dictate the weekly closing ranges in the pair, given the importance of the 2.60% level in US 10s. An in-line or better read should keep the pair well supported at 1.0850, but traders need to watch oil."
Key Quotes:
"Funds has traded in very tight Asian and London ranges, from basically 1.0850-1.0860. On balance, Poloz’s remarks yesterday are net supportive for USD/CAD, and they have reduced the risks of a weekly close in the 1.0800-1.0820 range. However, the BoC’s attitude towards the CAD remains very timid, and this can be seen in the changing relationship between USD/CAD and the oil price."
"Since there has been no major impetus for a weaker CAD from the BoC, the pair’s sensitivity to the oil price has been picking up. Using a three-month window of data, today’s ‘predicted’ USD/CAD level based on recent movements in WTI alone is currently 1.0840."
"That is a 60-pip drop from yesterday’s predicted value, and it’s the first 1.0800 handle since February. Our model’s ‘fair value’ has also dropped to 1.0910 from 1.0960 at the start of the week."
"Data impact on USD/CAD will still be fairly limited with the June FOMC approaching, but in light of tepid retail sales data yesterday, today’s US PPI data will help dictate the weekly closing ranges in the pair, given the importance of the 2.60% level in US 10s. An in-line or better read should keep the pair well supported at 1.0850, but traders need to watch oil."