Judging by the G10 ranges during the London morning, turnover has probably been quite low ahead of more important data and events as the week moves forward from here. The EUR was bid, and OIS rates there were generally firmer. The swing back into commodity-bloc currencies which started a week ago appears to have stalled a bit, but the underlying demand to own the JPY crosses has persisted to coincide with the start of the new fiscal year in Japan.
USDCAD’s range has really tightened up heading into the start of the employment ‘drumroll’, with ADP due tomorrow. On the basis of 2yr/5yr swap and sovereign rate differentials, USDCAD’s short-term valuation is roughly neutral-to-slightly undervalued. These differentials are still the main driver of USDCAD at the moment, but the sensitivity of USDCAD to these rate differentials has declined a little bit over the past week. This makes sense, given that the strong performance of commodity-bloc currencies at the end of March appeared to be largely position driven.
This confluence of factors means the CAD has two main issues to work through over the balance of the week. The first is the tone of the US data. The second is the outcome of the ECB rate decision. A surprise ECB easing and poor US data will boost the commodity-bloc currencies and threaten the 1.100 level in USDCAD. For the time being, 1.105-1.109 should provide very good resistance, whilst better second-tier Canadian data today could see the pair close below 1.105.
Read the full report: FX Daily
BMO