USD/CAD: upside favored despite OPEC-driven fall - Scotiabank

Eric Theoret, Strategist at Scotiabank notes that even though oil prices are providing near-term support to CAD, they continue to highlight the growing risks surrounding Canada’s domestic outlook as we approach Friday’s GDP release for July. 

Key Quotes

“CAD is quiet consolidating around Wednesday’s close following an impressive OPEC-driven rally. Oil prices are providing near-term support to CAD and their gains have delivered an improvement in the broader market tone. However we continue to highlight the growing risks surrounding Canada’s domestic outlook as we approach Friday’s GDP release for July.”

“The Bank of Canada has already communicated a downward ‘tilt’ to its outlook for inflation and the most recent CPI saw a notable drop in headline inflation to 1.1% y/y. OIS are still pricing in a slight risk of a cut over the next 12 months, however the magnitude has moderated in response to the rally in oil. We remain bearish CAD on the basis of domestic risks and note the potential for further weakness.”

“USD/CAD short-term technicals: neutral-bullish—momentum signals have softened to neutral however we note USDCAD’s impressive bounce off support at the 50 day MA (1.3054, see middle chart). Hourly charts are suggestive of an upswing. We look to USDCAD gains toward 1.3200 and 1.3250 and highlight that the multi-month sequence of higher lows has yet to be violated.”