USD/CAD seen neutral, within 1.2800/1.2920 – Scotiabank

FX Strategist at Scotiabank Eric Theoret, noted the neutral stance on spot, which continues to navigate within the recent 1.2800/1.2920 range.

Key Quotes

“The outlook for relative central bank policy continues to dominate and Thursday’s NA session risk lies with the Fed Chair decision. Domestic rate expectations are showing signs of stabilization following their recent moderation, and OIS are pricing a roughly 50% chance of a 25bpt hike for January. The 2Y U.S.-Canada yield spread appears to have steadied around 20bpts, the midpoint of its May-September range, and risk reversals appear exhausted following their recent shift from early October. Premiums for protection against CAD weakness are relatively elevated at the upper end of their multi-month ranges. We are neutral CAD”.

“USDCAD’s rally appears to have exhausted itself just below the mid-point of the May-September decline at 1.2928. Bullish momentum signals are softening from overbought levels and DMI’s are converging, however USDCAD has yet to break out of last Friday’s range roughly bound between 1.2800 and 1.2920”.