Market Analysis

CAD Bears Not Yet Hibernating

At the start of the week the UK’s Barclays Bank argued in favour of a higher level for USDCAD predicated on the idea that while “the market is pricing in a full extension of OPEC cuts on 30 November, [Barclays’ analysts] do not expect it to make a final decision until 2018.” Well, 30 November is upon us and the result of the OPEC meeting in Vienna should be announced later in the day. Traders will have their own views on how far an extension of OPEC’s output curbs is or is not currently priced in USDCAD but, either way, CAD traders will anyway then also have to confront Friday’s release of Canadian Q3 GDP data. Dutch bank ING, writing earlier in the week, took the view that “after the large negative surprises in [Canadian] September trade and retail sales data last week, the risks are tilted to the downside [for Q3 Canadian GDP].”

ING also notes that “the CAD OIS curve [is now] pricing in little prospects of a Jan-2018 Bank of Canada hike.”  US bank Morgan Stanley has also focused on interest rates but with a longer outlook, picking long USDCAD as one of its top ten ideas for 2018. Traders can make their own minds up but Morgan Stanley sees “USDCAD trading higher over 2018, driven by widening interest rate differentials between the Fed and the BoC.” The US firm sees USDCAD reaching C$1.3800 in Q4 2018. It’s also worth noting that the same US firm also has a yen for a lower USDJPY, seeing the pair at Y105.00 in Q4 2018 which, if the two views are married together, equates to a very bearish 76.10 target for CADJPY at the end of next year. It may be winter but CAD bears show no signs of going into hibernation.

Written by Neal Kimberley, External Currency Analyst.