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19 May 2015
USD/CAD testing 1.22 ahead of Governor Poloz’s speech – TDS
FXStreet (Barcelona) - FX Strategists at TD Securities, highlight the key risks to USD/CAD from Canadian Governor Poloz’s speech today, and maintain an upside bias on the pair, expecting a break above 1.22 to open up 1.23 levels in the near-term.
Key Quotes
“Funds has traded bullishly after failing to break the 1.1920 key support level last week and we view USDCAD's mini-rally from yesterday during the Canadian holiday as an anticipatory move for Governor Poloz's speech today.”
“With US data mixed and the Canadian growth outlook almost exclusively tied to the rebound in the US economy (at least, according to Poloz), we think he could use the speech today as an opportunity to soften his nascent optimism. The topic of his speech – "The Way Home: Reading the Economic Signs" – sets up to be what will be an important discussion before BoC communication enters its blackout period beginning tomorrow for the May 27th interest rate meeting. Headlines will begin to hit at 11:30ET with a press conference will follow at approximately 13:00ET.”
“While the Bank will not explicitly try to jawbone the currency in one way or the other, CAD depreciation this year is probably a welcomed event behind closed doors.”
“We have argued that the Bank has emphasized that easy financial conditions following the surprise rate cut in January (much more than the Bank had anticipated) was one of the key inputs in determining the risks around the overnight rate; but with funds (and fixed income) nearly returning to pre-cut levels and the US economy looking a bit wobbly at the moment, the Bank may be inclined to take a softer tone at this speech.”
“We are a touch concerned that the run-up in USDCAD yesterday especially might have set the bar up too high for Poloz to sound dovish, and may make us susceptible to a sharp pullback as the market tries to decipher his speech.”
“Despite this risk, however, we look for USDCAD to rally further from here as we expect a more cautious tone from the Governor. A break above 1.22 would open up upside potential and would put 1.23 in the cards near-term but would ultimately signal scope for a rebound to 1.2450. Note our FV estimate for USDCAD today stands at 1.2197.“
Key Quotes
“Funds has traded bullishly after failing to break the 1.1920 key support level last week and we view USDCAD's mini-rally from yesterday during the Canadian holiday as an anticipatory move for Governor Poloz's speech today.”
“With US data mixed and the Canadian growth outlook almost exclusively tied to the rebound in the US economy (at least, according to Poloz), we think he could use the speech today as an opportunity to soften his nascent optimism. The topic of his speech – "The Way Home: Reading the Economic Signs" – sets up to be what will be an important discussion before BoC communication enters its blackout period beginning tomorrow for the May 27th interest rate meeting. Headlines will begin to hit at 11:30ET with a press conference will follow at approximately 13:00ET.”
“While the Bank will not explicitly try to jawbone the currency in one way or the other, CAD depreciation this year is probably a welcomed event behind closed doors.”
“We have argued that the Bank has emphasized that easy financial conditions following the surprise rate cut in January (much more than the Bank had anticipated) was one of the key inputs in determining the risks around the overnight rate; but with funds (and fixed income) nearly returning to pre-cut levels and the US economy looking a bit wobbly at the moment, the Bank may be inclined to take a softer tone at this speech.”
“We are a touch concerned that the run-up in USDCAD yesterday especially might have set the bar up too high for Poloz to sound dovish, and may make us susceptible to a sharp pullback as the market tries to decipher his speech.”
“Despite this risk, however, we look for USDCAD to rally further from here as we expect a more cautious tone from the Governor. A break above 1.22 would open up upside potential and would put 1.23 in the cards near-term but would ultimately signal scope for a rebound to 1.2450. Note our FV estimate for USDCAD today stands at 1.2197.“