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 spec long positions remain considerably shy of past peaks, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Markets heavily favour an Oct 25 follow up hike (88% priced) vs Sep 6 (24% priced), but it is not clear why the BoC should wait, even though Oct will include fresh MPR projections. BoC officials have gone out of their way already to make their intentions abundantly clear - insurance easings of 2015 have overstayed their welcome.”

“USD/CAD has hit our 1.25 target ahead of schedule but likely solid jobs data next week, matching firmer activity signals, should see Sep BoC hike expectations firm. Would not be surprised to see 1.20/21 on a 3-6mth horizon especially if the Fed loses its nerve and does not deliver another 2017 hike.”