Short-term bulls, long-term bears
Our contention is that in the near-term it’s very likely we see USDCAD push towards Q3 highs of 1.3380-85 having arguably broken multi-month trend resistance and the key 1.3 level. Though, the driving factor will primarily come from USD risk and not what some would say is Canadian sluggishness. We believe that while short-term momentum runs strong, long-term fundamentals suggest USDCAD lower.
Canadian economy ticking along
Overnight markets saw CAD inflation numbers y/y print 1.9%, in line with expectations. This puts inflation close to the BoC 2% target and probably means BoC remain unchanged at their next December meeting. BoC are unlikely to deliver an insurance cut in Dec. despite having flagged downside risks to growth. In our SPECIAL REPORT: BoC October Preview, we show that domestic employment and housing data has been strong but follow-through to labour figures and consumption has been sub-par.
Scheduled risk ahead
BoC Gov. Poloz speaks on Friday at 12.40am AEDT while Sep. Core Retail Sales m/m prints Saturday, 12.30am AEDT. Monthly Core Retail Sales, having disappointed in recent times, sees consensus at -0.1%. A negative print here confirms the sluggish state of Canadian spending and could drive Dec. rate cut pricing higher. Therefore, we closely monitor both risk events and lean on USDCAD short-term bullishness. CAD positioning is still the most high conviction long among G10 currencies.
