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11 Jun 2014
Broader outlook for USDCAD still higher - TDS
FXStreet (Bali) - Shaun Osbourne, Chief FX Strategist at TD Securities, thinks that the broader outlook for USDCAD is higher.
Key Quotes
"USDCAD traded softly Monday, reversing some of the gains made last week on cross flows, and eased a little further through the overnight session., But support in the upper 1.08 area has held and funds has recovered quite nicely so far. In fact, we think the low for the session has printed and the near-term direction at least should be higher for USDCAD."
"USDCAD’s price action so far this year has followed—broadly—the pattern of trade seen in 2013 (gains in Q1, consolidation through Q2 and an important low forming in early May). May has often seen a minor bounce in USDCAD but what has been a constant throughout the past 10 years ore more has been the tendency for June to be one of the more positive months for USDCAD—if not the best month of the calendar year. We thought that the May seasonality gave the USD a chance to bounce from the low 1.08 area and we now think that the more pronounced bias for strength in June should really give the market a chance to extend higher through the mid 1.09 area and test the mid 1.10 zone in the next few weeks."
"We remain constructive on the broader outlook for the USD and continue to feel the medium-term trend in USDCAD is higher. The Canadian economy is facing some clear competitive challenges, a struggling export sector and a moderating employment backdrop; these factors should weigh on the currency."
"In the near-term, we think wider US-Canada spreads in the belly of the curve will add to upward pressure on spot. At the 5-year sector of the curve, the US yield premium has reached 10bps—the biggest yield advantage for the USD since 2009. Using 5-year spreads and terms of trade as inputs into our fair value regression model, we obtain a FV estimate of 1.1175 for USDCAD currently."
"Seasonal factors and medium-term spreads combined suggest to us that USDCAD should be trading higher in the near-term, if not right now. We look for solid support on dips to the 1.09 area and favour looking to buy into USD weakness."
Key Quotes
"USDCAD traded softly Monday, reversing some of the gains made last week on cross flows, and eased a little further through the overnight session., But support in the upper 1.08 area has held and funds has recovered quite nicely so far. In fact, we think the low for the session has printed and the near-term direction at least should be higher for USDCAD."
"USDCAD’s price action so far this year has followed—broadly—the pattern of trade seen in 2013 (gains in Q1, consolidation through Q2 and an important low forming in early May). May has often seen a minor bounce in USDCAD but what has been a constant throughout the past 10 years ore more has been the tendency for June to be one of the more positive months for USDCAD—if not the best month of the calendar year. We thought that the May seasonality gave the USD a chance to bounce from the low 1.08 area and we now think that the more pronounced bias for strength in June should really give the market a chance to extend higher through the mid 1.09 area and test the mid 1.10 zone in the next few weeks."
"We remain constructive on the broader outlook for the USD and continue to feel the medium-term trend in USDCAD is higher. The Canadian economy is facing some clear competitive challenges, a struggling export sector and a moderating employment backdrop; these factors should weigh on the currency."
"In the near-term, we think wider US-Canada spreads in the belly of the curve will add to upward pressure on spot. At the 5-year sector of the curve, the US yield premium has reached 10bps—the biggest yield advantage for the USD since 2009. Using 5-year spreads and terms of trade as inputs into our fair value regression model, we obtain a FV estimate of 1.1175 for USDCAD currently."
"Seasonal factors and medium-term spreads combined suggest to us that USDCAD should be trading higher in the near-term, if not right now. We look for solid support on dips to the 1.09 area and favour looking to buy into USD weakness."