TD with an early heads up for the BoC next week (10 July at 1400GMT) - and a where to for CAD in the meantime.
- With the BOC likely reluctant to follow the Fed into the deep-end - at least, right away - the CAD now becomes a contender for carry in the G7 - a status long championed by the USD in this cycle. For this reason, we think this will help support CAD outperformance on the crosses as well, particularly against the low yielders (provided that risk is not completely upended).
- We have revised our forecast for USDCAD lower. We expect a break of 1.30. But we think this will inevitably become an exercise to discover the Bank of Canada's pain threshold for CAD appreciation. If history is any guide, we think the 1.25 marker in USDCAD could be problematic before it induces an endogenous response from the BOC - whether actual policy or a shift in its communication strategy.
- We think markets will appreciate this and hence, we expect 1.28 to become a more formidable level of support. Ahead of the event risk, we think USDCAD may be more inclined to retrace some of its losses. We think this is more of a reflection of profit taking and thin liquidity following CAD outperformance in the last two weeks. As such, we think this retracement should be shallow and contained towards 1.32. We would view a move to this threshold as an opportunity to re-engage in USDCAD shorts.
(bolding above is mine)
I posted yesterday on WPAC looking for support in USD/CAD, so far its been tough - USD/CAD is at lows not seen since late 2018.:
