CAD: Increasingly sensitive to monetary developments - BNPP

Research Team at BNP Paribas, notes that overnight, USDCAD fell to 1.3283 after Bank of Canada Govenor Poloz said that their best plan right now was to “wait for the next 18 months or so”.

Key Quotes

“USDCAD has since rallied back after Poloz made it clear that he was not referring to monetary policy but to the time frame over which the output gap is expected to close. Markets have recently become more focused on the possibility that commodity bloc central banks might deliver easing.

The market probability of a BoC cut over the next twelve months remains low (33%) and the CAD should remain sensitive to domestic data as the BoC are exhibiting a willingness to ease if warranted by the data. Our economists think the BoC is likely to be reluctant to ease further in the near future, and our bearish forecasts for CAD (targeting 1.35 year-end) continue to rely on Fed tightening and consequent broad USD gains and friction in the risk environment. We note that our BNP Paribas short-term fair value model STEER™ signals that commodity currencies remain very sensitive to international drivers (global equities).”