USD/CAD taking its cue more from yield spreads than oil prices - Westpac

Richard Franulovich, Research Analyst at Westpac, notes that a large gap persists between steady oil prices and less supportive CAD yield spreads, leaving CAD uncomfortably wedged somewhere in the middle.

Key Quotes

“At 1.34/1.35 USD/CAD appears to be evenly splitting the difference between oil prices (1.29) and US-CA 2yr yield spreads (1.39).”

“Yield spreads seem more likely than not to continue to break in favour of yet higher levels for USD/CAD near term. Beyond jobs, the local calendar offers little data in the next two weeks that might appreciably shift the BoC’s assessment that there is material slack in the economy. Meanwhile US markets have mostly just front-loaded Fed hike expectations for 2017 rather than raising year-end expectations: +65bp is priced by year’s end, up just 2bp in a week and still shy of the Fed median in favour of 3 hikes.”