USD/CAD gains: are they a sell? - Scotiabank

Analysts at Scotiabank explained that they think it will be hard for the CAD to fully ignore the significant build up in yield premium over the USD in the next little while. 

Key Quotes:

"Given still low expectations for a Fed rate hike by year-end, the biggest risk of the CAD perhaps in the next few days is the run of US data just around the corner from the US. Strong data which lifts Fed rate hike expectations will help boost USD/CAD modestly at least."

"Canadian data points remain distinctly second tier in nature until manufacturing sales on the 19th and CPI on the 22nd. Note that our fair value estimate for USD/CAD remains below the market, however, and suggests equilibrium around 1.2026 currently."

"Unless Fed/ BoC policy dynamics change dramatically near-term, we think USD/CAD upside risks are limited and that minor USD gains are a sell."