Canadian dollar seen outperforming in global FX space, firm support for USD-CAD seen at 1.01 area

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Published on Tuesday, 03 July 2012 13:34

Written by Rob Samson

International Money Transfers at our sister site

"Near term rate expectations remain below the BoC’s 1.0% overnight rate, however an improvement has been seen since May 31, and Scotiabank maintains its forecast for tightening to begin roughly one year from now" - Eric Théorêt at Scotiabank.

The Canadian dollar (Currency:CAD) is seen outperforming in the global FX space as we head into the afternoon session in London.

We see the pound to Canadian dollar exchange rate is 0.33 pct 1.5916.

The US dollar to Canadian dollar currency pair is 0.22 pct lower on Monday night's close at 1.0151. (For FX forecast updates and access, please visit our IMT site via this Facebook entry path).



"CAD is outperforming, buoyed by higher oil prices, with upward movement in WTI being driven by concerns over Iran following implementation of the EU em- bargo on July 1st and amid rumors of further easing from China despite an increase in the non-manufacturing PMI," says Eric Théorêt at Scotiabank.

There is little by the way of domestic data releases due out of Canada until Friday’s employment report.

As a result CAD movement is likely to take the lead from broader market sentiment.

Traditional drivers such as equities and oil are also likely to have an impact despite the recent decline in correlations, and ongoing headline risk from Europe will keep investors focused on sovereign ratings and debt metrics - a positive for CAD.

"Near term rate expectations remain below the BoC’s 1.0% overnight rate, however an improvement has been seen since May 31, and Scotiabank maintains its forecast for tightening to begin roughly one year from now. In this environment, we expect today’s range in USDCAD to fall between," says Théorêt.

According to Shaun Osborne at TD Securities, for the Canadian Dollar, weak global activity picture and the risk of more stimulus measures clearly pull the currency in two directions.

"On the face of it, heavy selling last week from the low 1.03 area (now strong, short-term resistance) puts a firm cap on the funds for the moment. But we also expect pretty firm support in the low 1.01 area for now (200-day MA at 1.0120). Clear weakness below 1.01 may see the USD lose another two big figures," says Osborne.