USD/CAD upside momentum stalling out - Westpac

More cautionary near term USD backdrop with a Dec Fed hike is now mostly priced in and USD/CAD upside momentum into 1.25 is stalling out, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Markets price in a 25% chance for a BoC hike at their Oct 25 meeting but given recent BoC commentary stressing data dependence and a focus on tightening financial conditions, the BoC is likely to take a pass.”

“Beyond that, +50bp in BoC rate hikes by mid-2018 are priced in, entirely reasonable given PM Trudeau’s 2016 fiscal stimulus is still washing through the economy, US growth prospects are firming amid very easy financial conditions while oil prices are holding near multi-month highs.”

“USD/CAD should wash about in a 1.23- 1.26 range into year’s end before potentially resuming its downtrend as US tax cut fever hits political snags and the BoC resumes rate hikes.”