USD/CAD poised for further decline near term – Scotiabank

FX Strategists at Scotiabank remain bearish in the short-term horizon in the pair, expecting some resistance in the 1.2820 area.

Key Quotes

“CAD is firm testing fresh highs at levels last seen in late February. Canadian oil prices are providing support and Western Canada Select is testing fresh multi-year highs above $45/bbl. The broader market tone is suggestive of risk appetite as participants reassess the near-term threats to global trade. NAFTA negotiations are set to continue through Friday and recent comments have been constructive. Domestic rate expectations are firm with OIS pricing just over a 50% chance of a 25bpt rate hike for May and a full hike by July. The 2Y U.S.-Canada spread remains elevated however, hovering just below 50bpts. Domestic risk is elevated as we look to Thursday’s release of international merchandise trade data for February. Risk reversals suggest an ongoing moderation in the premium for protection against CAD weakness. We are bullish CAD into the spring/summer period”.

“Momentum signals are bearish and DMI’s are providing confirmation. USDCAD appears set to attempt a break of the 50 day MA (1.2734), just above the technically relevant 1.2720 level roughly corresponding to the 38.2% retracement of the mid-2017 decline. A reminder that USDCAD’s Q1 rally failed just below the 61.8% retracement at 1.3132. Near-term resistance is expected above 1.2820”.