USD/CAD pair likely to see moderate downside risks, to trade around 1.28 by end-2019

The Canadian dollar has firmed against the US dollar after weakening to a 20-month low at the beginning of this year, noted Lloyds Bank in a research report. The sharp fall and subsequent rebound in Brent Crude prices led the USD/CAD to 1.36 from 1.32 and back. From current levels, there are moderate downside risks to the currency pair, said Lloyds Bank.

Oil prices have recovered and are likely to underpin the CAD. Meanwhile, despite the consumer price inflation rising to 2 percent and a jobless rate at multi-decade lows, communications from Bank of Canada officials continue to be ‘dovish’.

Even so, the change in language from the Federal Reserve has led the 2-year US-Canadian interest rate differential to fall back from recent ‘wides’. If this theme continue, it argues for additional CAD strength. Furthermore, the market still holds a considerable ‘net short’ position in the Canadian dollar.

“As it slowly starts to reduce this position, the risks from a positioning perspective remain skewed towards CAD buying. Given the fundamental and technical outlooks, we remain bearish on USD/CAD, forecasting 1.28 at end-2019”, added Lloyds Bank.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was very bullish at 114.674, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -79.4616more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex