Credit Agricole CIB FX Strategy Research notes that after factoring in the BoC, rhetoric the 1.5% rally in the CAD after the central bank announcement yesterday looks outsized relative to a 5bp move in Canadian 2Y rates (the prior 40bp move in rates was accompanied by a 4% gain in the CAD).
“This suggests that FX markets were caught positioned short CAD before the decision, which suggests scope for some USD/CAD recovery once positioning is more balanced.
While acknowledging the BoC’s clear resolve to normalize policy, we continue to question whether the ongoing strength in the CAD and a tightening in financial conditions will weigh on inflation and compromise the BoC’s tightening plans,” CACIB argues.
Source: Credit Agricole CIB Research
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