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18 Mar 2016
USD/CAD: Looks set for ninth consecutive weekly decline - TDS
Research Team at TDS, suggests that the USD/CAD looks set to mark its ninth consecutive weekly decline, totaling a net 11% decline from the January peak.
Key Quotes
“A cautious Fed, a boost in oil prices and a shift from monetary to fiscal policy in Canada have all contributed to the drop in USD/CAD. Local Canadian data has largely taken a back seat to these global drivers, but we note that CPI and retail sales tend to impact USD/ CAD price action.
Notably, our analysis of data surprises suggests that retail sales tend to have a larger impact on USD/ CAD than inflation in the first 30 minutes following the release. Indeed, USD/CAD has averaged gains of 0.1% in the 30 minutes following the release for the past year. That said, there are more asymmetries around the CPI release with USD/CAD’s downside higher on positive inflation surprise relative to retail sales. This reflects in part the BoC’s sensitivity to inflation, which remains close to target.
For now, a cautious Fed is likely to keep the greenback under pressure, but we note further improvement in US data and firming domestic inflation will put the Fed in a position to hike rates again this year. In turn, we think this is a pause in the USD (not a turning point) so prefer not to chase the decline in USD/CAD. Our high-frequency models indicate fair value lies near 1.34, indicating USD/CAD is 1.5 standard deviations cheap – usually a good entry point.”
Key Quotes
“A cautious Fed, a boost in oil prices and a shift from monetary to fiscal policy in Canada have all contributed to the drop in USD/CAD. Local Canadian data has largely taken a back seat to these global drivers, but we note that CPI and retail sales tend to impact USD/ CAD price action.
Notably, our analysis of data surprises suggests that retail sales tend to have a larger impact on USD/ CAD than inflation in the first 30 minutes following the release. Indeed, USD/CAD has averaged gains of 0.1% in the 30 minutes following the release for the past year. That said, there are more asymmetries around the CPI release with USD/CAD’s downside higher on positive inflation surprise relative to retail sales. This reflects in part the BoC’s sensitivity to inflation, which remains close to target.
For now, a cautious Fed is likely to keep the greenback under pressure, but we note further improvement in US data and firming domestic inflation will put the Fed in a position to hike rates again this year. In turn, we think this is a pause in the USD (not a turning point) so prefer not to chase the decline in USD/CAD. Our high-frequency models indicate fair value lies near 1.34, indicating USD/CAD is 1.5 standard deviations cheap – usually a good entry point.”