29 Jan 2015
USD/CAD might move towards 1.2625/35 into end of the week – TDS
FXStreet (Barcelona) - Shaun Osborne, Chief FX Strategist at TD Securities, expects soft commodities negative yields to drive further CAD weakness, anticipating USD/CAD to see 1.2625/35 levels into the end of the week.
Key Quotes
“A big build in US crude inventories kept WTI prices trading defensively yesterday. The markets were prepped for higher inventories by the API data released late Tuesday but the eye-catching headline from the EIA report was that weekly crude supplies rose to the highest level since 1982. Our commodities colleagues think there is more pain to come for crude and that prices will be trading on a 3-handle soon.”
“Weak Canadian data and focus on the policy outlook will underpin a notable development this week—US 2y bond yields moving above those of Canada. Apart from the chop in yields in 2008, this is the first time the 2y spread has been positive since 2007.“
“As a consequence, the USD enjoys positive yield spreads across the entire (2,5, 10 and 30-year tenors) yield curve.”
“Fed rate lift off prospect contrasts with the shift in Canadian rates markets; another 25bps cut is now fully priced in for May and markets may start to price in the risk of additional moves still.“
“The backdrop here of soft commodities and negative (for the CAD) yield spreads will help keep USDCAD supported overall—even in the event of a trading bounce in the CAD in the next few weeks. These are issues that are not going away any time soon as a driver of CAD weakness versus the USD from a medium-to-longer term perspective.“
“We think USDCAD could reach for 1.2625/35 into the end of the week, or higher still if crude prices slip more markedly.”
Key Quotes
“A big build in US crude inventories kept WTI prices trading defensively yesterday. The markets were prepped for higher inventories by the API data released late Tuesday but the eye-catching headline from the EIA report was that weekly crude supplies rose to the highest level since 1982. Our commodities colleagues think there is more pain to come for crude and that prices will be trading on a 3-handle soon.”
“Weak Canadian data and focus on the policy outlook will underpin a notable development this week—US 2y bond yields moving above those of Canada. Apart from the chop in yields in 2008, this is the first time the 2y spread has been positive since 2007.“
“As a consequence, the USD enjoys positive yield spreads across the entire (2,5, 10 and 30-year tenors) yield curve.”
“Fed rate lift off prospect contrasts with the shift in Canadian rates markets; another 25bps cut is now fully priced in for May and markets may start to price in the risk of additional moves still.“
“The backdrop here of soft commodities and negative (for the CAD) yield spreads will help keep USDCAD supported overall—even in the event of a trading bounce in the CAD in the next few weeks. These are issues that are not going away any time soon as a driver of CAD weakness versus the USD from a medium-to-longer term perspective.“
“We think USDCAD could reach for 1.2625/35 into the end of the week, or higher still if crude prices slip more markedly.”