‘Risk appetite’ was very tepid during most of the London morning, with more ‘bad news’ out of China colliding with the still uncertain situation regarding Russia. G10 FX, at the margin, reflected this in softer EURUSD, GBPUSD and USDJPY pairs.
We expect topside potential in USDCAD to remain very limited again, particularly between 1.105 and 1.112. The current most important driver of USDCAD, the 5yr swap rate differential, suggests the pair is pretty fairly valued just above 1.100. At the same time, short-term FX investors are probably about neutral to very slightly CAD short in terms of positioning.
Our economists are sub-consensus for YoY US CPI due shortly (1.1% vs. 1.2% consensus). The primary risk today appears to be that a firm reading on Canadian manufacturing sales for January and a softer US CPI reading force another small ‘clear-out’ of USDCAD longs, bringing the 1.103 area into view. We’d look to the 1.098-1.103 range as a better place to initiate USDCAD bids.
Read the full report: FX Daily
BMO