CAD can recover ground, even in a USD bull market
The dollar was the clear winner overnight and 10Y UST yields rose sharply to 2.17% as US consumer confidence index jumped to the highest level since February 2008 and the Standard & Poor’s Case Shiller index showed that home prices rose the strongest in nearly 7 years. Nevertheless we think CAD will continue to outperform the other commodity bloc currencies as US data strong enough to improve the US dollar’s fortunes is also likely to be reflected in better Canadian activity over time, absent an idiosyncratic shock in Canada. Consequently, USDCAD rally will struggle to break above layers of support in the 1.04-1.05 area, with an eventual reversal to 1.03 likely in the near-term. Today, the Bank of Canada is likely to deliver unchanged policy guidance at 14 GMT (10am ET), continuing to note that “considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.” Growth has been firmer than the BoC projected in April and the Bank likely views the mild hawkish bias in its message as an important warning in its efforts to discourage excessive household leverage. The meeting is the last one for the outgoing Governor Mark Carney, which also suggests that a steady message is the most likely outcome.
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BNP Paribas