USD/CAD: Divergent signals - Westpac

Oil prices and the BoC are sending notably divergent signals for USD/CAD, but the BoC should comfortably carry more sway, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Comments from Gov Poloz and Snr Dep Gov Wilkins amount to a clear tightening bias, both officials hinting strongly that the 50bp in oil-related easing have overstayed their welcome now that the adjustment to the terms of trade hit is complete and growth is broadening across regions and sectors. At a minimum, look for the BoC to tweak guidance at their next meeting 12 July to signal that the next move in rates will be up, and would not rule out a hike either.”

“The BoC’s hawkish pivot should inoculate CAD from multiple threats including Trump NAFTA renegotiation risk and the vagaries of the oil market, especially given near record short positioning (CFTC net non commercial shorts = 94.5k contracts). USD/CAD should test sub-1.30 into the BoC’s 12 July meeting.”