The USD was mostly stable-to-higher during the London morning, with the DXY now sitting just above its 30-day moving average and at about the middle of yesterday’s range. The rest of the week’s key US data (durables, Services PMI, and personal income & spending) remain rather important for the USD at this stage and for the tone heading into quarter-end. Some of yesterday’s price action in the USD may indicate a market which is reluctant to add to USD longs whilst the Fed is still engaged in QE and the data are just ‘lukewarm’. We’re data-dependent, but the bar is fairly high.
We expect the range in USDCAD to tighten up heading into tomorrow, especially in light of the further short CAD covering seen yesterday. Key valuation metrics do not indicate that the pair is overly stretched to the topside at this stage (spot ref: 1.1205), and decent support and resistance levels are clustered on either side of spot (1.113-1.120 and 1.1275-1.130 respectively).
Key interest rate differentials are still supportive of USDCAD, but there is a risk that further tepid US data this week knocks those spreads and the USD a bit further back towards their pre-FOMC levels.
Read the full report: FX Daily
BMO