USD/CAD: Scope for a slide to the 1.22 level – MUFG

The CAD has continued to trade on a stronger footing over the past week with USD/CAD hitting an intra-day low of 1.2288. Fundamentals remain supportive for CAD strength but risk/reward balance for further near-term gains less favourable now, economists at MUFG Bank report.

Will the BoC or OPEC+ meetings spoil the CAD party?

“The next key support area comes in at around the 1.2200-level.”

“The Canadian rate market has moved sharply over the past month to price in both earlier BoC hikes and a larger hiking cycle. Weekly QE purchases are currently running at CAD2 B, and the BoC could announce plans to formally bring an end to QE this year. To reinforce upward momentum for the CAD, the BoC will also have to drop forward rate guidance.”

“The CAD has been benefiting from the higher price of oil. Our oil analyst expects the higher price of oil to be sustained as the current fundamental setup couldn’t be more favourable, and has set a year end forecast for Brent at $85/barrel. It should help to support a stronger CAD heading into year-end although we are wary of downside risks posed by the upcoming OPEC+ meeting on 4th November which also coincides with the COP26 climate talks.” 

“While momentum still favours further CAD gains in the near-term, the risk/reward balance has become less favourable at current stronger levels.”