USD/CAD has been oddly firm - Westpac

Richard Franulovich, Research Analyst at Westpac, notes that the USD/CAD has been oddly firm despite 3 month highs in oil prices and falling Trump risk, a warning that perhaps another leg-up may be on the horizon.

Key Quotes

“But markets are significantly underestimating growth risks for H2. Energy prices have stabilised, flagging a less weak incomes picture while Trudeau’s fiscal stimulus will soon begin to wash over the economy. June and July monthly GDP of 0.5% and 0.6% respectively confirm that much of the soggy growth picture in Q2 was a function of disruptions caused by the Fort McMurray wildfires. Growth could easily top the BoC’s 3.2% forecast for 2016H2.

Given the constructive growth story and that oil prices are now meaningfully outperforming both iron ore and dairy markets, AUD/CAD and NZD/CAD seem set to post a deeper plunge.

USD/CAD is a tougher trade given Fed hike risk but we still ultimately favour selling strength into 1.33.”