CAD: Sideways trend to persist - HSBC

Analysts at HSBC do not expect USD-CAD to move very far from 1.26 in the coming weeks, the mid-point of a possible 1.24-1.28 that has become apparent over the last month or so.

Key Quotes

“We are not looking for anything dramatic in terms of shifting US rate expectations and it is not clear that there are big swing factors in prospect for the CAD either.”

“USD-CAD is trading generally in line with interest rate differentials, for example those represented by the Dec 18 3M interest rate futures contracts. In Canada, the market remains more confident than in the US that a further rate hike will be delivered before the end of the year. Bloomberg data currently attaches a 40% probability to a US move and a 66% probability to a BoC hike. But it is interesting to note that the degree of certainty in Canada is on the retreat. At the start of August, the probability was 75%. If this process continues it would be consistent with USD-CAD trading back up to 1.28.” 

“The influence of oil prices over USD-CAD has been declining during H2 17 and remains low. The correlation between daily changes in the oil price and the exchange rate has been -0.13 over the last month. At the end of June, the measure was -0.64. This may be because there has been less excitement in the oil story than in the BoC’s pivot towards the exit in recent months, but the trend of lower highs in the oil price since late-February suggests a market still under pressure. For now, however, we do not expect oil to be a catalyst for a big CAD move.”