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16 Jul 2015
USD/CAD firmer, could reach 1.35 – RBS
FXStreet (Edinburgh) - FX Strategist at RBS Greg Gibbs believes the pair could visit the 1.35 area following the now looser stance of the BoC.
Key Quotes
“Similar to the decisive action by the RBNZ a month earlier, the Bank of Canada cut rates by 25bp to 0.5% overnight and set the weaker tone for commodity currencies”.
“The Bank does not forecast a return to full-capacity and neutral 2% inflation until the first half of 2017, quite some time away, suggesting the risk is that it may need to take out further insurance and cut rates again in coming months”.
“The risks posed by falling energy prices, and the potential return to the global oil market of Iran, is placing downward risks on the energy sector, a factor that may hasten further policy action by the BoC”.
“USD/CAD subsequently fell in Apr/May as the BoC dampened expectations that it needed to cut rates again, but renewed weakness in energy commodities and generally weaker growth than the BoC expected has seen weakness in CAD resume. The rate cut today has helped push Canadian 2yr yields below the lows in February, and the 2yr swap rate spread between the USD and CAD has narrowed again to its lowest point reached in February”.
“The technical break higher in USD/CAD, narrowed rate spread, and weak energy sector equities (around their lows since 2012), suggests more upside pressure for the USD/CAD. Consistent with the weaker commodity price trends, Canada’s trade deficit has also widened in recent months to a record deficit in data back to 1997, well below market forecasts, adding downward pressure on the CAD”.
Key Quotes
“Similar to the decisive action by the RBNZ a month earlier, the Bank of Canada cut rates by 25bp to 0.5% overnight and set the weaker tone for commodity currencies”.
“The Bank does not forecast a return to full-capacity and neutral 2% inflation until the first half of 2017, quite some time away, suggesting the risk is that it may need to take out further insurance and cut rates again in coming months”.
“The risks posed by falling energy prices, and the potential return to the global oil market of Iran, is placing downward risks on the energy sector, a factor that may hasten further policy action by the BoC”.
“USD/CAD subsequently fell in Apr/May as the BoC dampened expectations that it needed to cut rates again, but renewed weakness in energy commodities and generally weaker growth than the BoC expected has seen weakness in CAD resume. The rate cut today has helped push Canadian 2yr yields below the lows in February, and the 2yr swap rate spread between the USD and CAD has narrowed again to its lowest point reached in February”.
“The technical break higher in USD/CAD, narrowed rate spread, and weak energy sector equities (around their lows since 2012), suggests more upside pressure for the USD/CAD. Consistent with the weaker commodity price trends, Canada’s trade deficit has also widened in recent months to a record deficit in data back to 1997, well below market forecasts, adding downward pressure on the CAD”.