USD/CAD’s scope to move lower based on BoC, oil prices

The USD/CAD pair is on its way to closing below 1.3400 for the lowest weekly close since February. The Canadian Dollar has some room to rise in the near future, according to MUFG Bank analysts.

Analysts have been relatively skeptical about the prospects for CAD, and overall for the year, we believe CAD will lag behind most of the G10, but when looking in the short term, they do see some potential for CAD to outperform.

Analysts don’t anticipate any further rate increases, but the economy’s resiliency and the BoC’s communication this week, which was slightly more hawkish, have kept the USCA 2yr swap at levels that are conducive to further USD/CAD losses.

Short-term regression analysis of rates and crude oil suggests that the USD/CAD could decline by a few significant figures from this point. According to the IMM analysis below, the CAD shorts are the most stretched, which may lead to some CAD purchasing as well.