USD/CAD: Longer-term risk reversals remain elevated - Scotiabank

Analysts at Scotiabank explained current conditions surrounding USD/CAD.

Key Quotes:

"that Foreign Affairs Minister Freeland is not returning to Washington however low level NAFTA negotiations are said to be ongoing. "

"Domestic rate expectations have remained largely unchanged over the past two weeks, despite the apparent progress in trade talks. OIS are still pricing roughly 20bpts of BoC tightening for October and 25bpts by year end."

"The outlook for relative central bank policy has deteriorated slightly, given the firming in Fed expectations following last week’s NFP, and Canada’s terms of trade index has fallen to its lowest level since March."

"We would also note the renewed widening in oil price differentials with Brent threatening fresh highs and Western Canada Select threatening fresh lows. Risk reversals have seen a considerable divergence over the past week, with a material moderation in the premium for protection against short-term CAD weakness. Longer-term risk reversals remain elevated."