The tone in global equities (Nikkei excluded) was generally ‘risk-off’, with modest declines partially spurred by more evidence that the PBoC is in the process of tightening monetary conditions. The BoJ’s ‘new easing’ announced overnight probably offset the Chinese news somewhat, allowing the JPY to remain soft. The USD traded mixed in the G10 space, but its tone was generally a ‘touch’ firmer vs. ‘EM’, following some softness yesterday.
USDCAD is still in a process of ‘finding a bottom’, and so we avoid any significant buying of the pair until it trades comfortably within or above the 1.100-1.102 range on a 2-3 session basis. Technicals (Bollingers) suggest this ‘direction-seeking’ is likely to continue for at least another 2-3 sessions. They also suggest that this tone may even persist through the key Canadian data for this week (Friday), unless that data are massively out-of-line one way or another.
Short-term sovereign spreads and mid-term rate differentials are still USDCAD supportive. However, the short-CAD bias in the market is still vulnerable to more short covering, and the USD appears rather offered. These opposing forces suggest very limited appetite for a break-out at the moment. We look for very good support at 1.094 and then again at 1.089-1.090, but we really don’t expect the ‘momentum buying’ to begin until we are comfortably within or above 1.100-1.102.
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BMO