On the downside, we’re staring some pretty stretched short-term CAD valuations in the face. Yet the CAD still feels fairly well offered so far today. On a weekly basis, last week’s move up in USDCAD was basically 2 sigma. Versus a number of G10 currencies, the daily RSIs are flashing ‘oversold’, or near enough to it. However, USDCAD has already deviated significantly from where short-run energy prices suggest it should be trading. This suggests that these moves in the CAD are the symptom of a race to a near-term ‘finish line’. In other words, despite these deviations from short-run fair value, the CAD market appears like it has an ‘axe to grind’ first, before it starts to consider other medium-term factors. Price action so far this week suggests this near-term finish line is almost certainly 1.100. For now, all of this makes us quite comfortable with our economists’ forecasts for a 1.100 Q1 average level in USDCAD.
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BMO