USD/CAD: Downside oil risks and a more cautious BoC should weigh on the loonie – MUFG

The outlook for the USD/CAD pair remains bullish in the short-term according to analysts at MUFG Bank. They see risks in the loonie and consider dollar’s sell-off will reverse its course. They warn that a continued rally in equity markets could help the Canadina dollar. 

Key Quotes:

“The USD will reverse course going forward after the broad-based sell-off this week. Market expectations for dovish policy pivot are unlikely to intensify over the short-term despite the weaker than expected inflation data from the US. Fed comments since the data make that clear.”

“The near-term outlook for crude oil remains poor with the slowdown in global growth weighing more heavily on the price of oil. In addition, there have been numerous reports indicating Russia ability to remain a key supplier of crude oil which has left the supply-demand balance globally less supportive for crude oil prices.”

“We believe both of these developments should help to lift USD/CAD back towards the year to date high from last month at 1.3224. Unlike the US labour market, there have been clearer signs of a slowdown in hiring in Canada as well.”

“While we do not expect a sharp reversal in equity markets over the short-term, the scope for further gains is more limited now.”