USD/CAD: Downside risk remains intact - Westpac

USD/CAD has come a long way - 13 big figures in less than three months - but on other metrics downside risk remains intact, notably CAD spec long positions remain considerably shy of past peaks, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Markets continue to heavily favour an Oct 25 follow up hike (86% priced) vs Sep 6 (34% priced), but it’s not clear why the BoC should wait, even though Oct will include fresh MPR projections. BoC officials have gone out of their way to make their intentions abundantly clear - insurance easings of 2015 have overstayed their welcome.”

“Would not be surprised to see 1.20/21 if the BoC hikes sooner than the market favoured option of Oct. But by then we suspect USD/CAD would be heavily oversold and overdue a correction, especially given that GDP leading indicators are beginning to crest.”