FxWirePro: The Driving Forces of Loonie and Trade Recommendations

The CAD is quietly consolidating within a remarkably tight range just below Friday’s three months high and entering Monday’s NA session unchanged vs the USD as it outperforms all of the G10 currencies in an environment of renewed USD strength. Crude oil prices remain supportive and continue to dominate as a near-term driver for the CAD. 

The outlook for relative central bank policy is offering additional support as market participants adjust to last week’s cautious optimism from the BoC’s Wilkins. Domestic rate expectations are showing tentative signs of a recovery and CAD/spread correlations have climbed back into positive territory. This week’s calendar is limited to Wednesday’s speech from the BoC’s Lane and Friday’s employment report. 

We are medium-term CAD bulls looking to strength on the back of a continued recovery in the price of oil and anticipate additional BoC-driven strength as markets reprice the next BoC hike (likely July).

Uphold CAD shorts against CHF and USD:
Little occurred this week to alter our medium-term bearish CAD views. If anything, the current state of the US government shutdown and gridlock reinforces our conviction that the prospects for passing USMCA/NAFTA 2.0 through Congress remain challenging, which should put significant pressure on CAD later this year; we are well- positioned for such difficulty through our calendar call spread. 

Our CADCHF cash leg, undertaken to hedge against a potential extension of dollar weakness from late- December and early-January, remains partially exposed to risk ahead of US-China trade headlines but still reflects our medium-term late-stage cyclical outlook for FX markets.

Activated a -3m/+7m OT USDCAD calendar call spread (k=1.40). Paid 16.6% in mid-January. Marked at 17.7%.

Uphold shorts in CADCHF in January at 0.7438. Stop at 0.7590. Marked at -0.96%. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly CAD is at 77 (bullish), while USD is inching at 75 (which is bullish), at press time 13:43 GMT. 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex