USD/CAD: A 'One-Off Level Shift'; Dual Employment Reports Key This Week – Barclays

Barclays Capital FX Strategy Research notes that USD/CAD seems to be stabilized around its recent lows, expecting more consolidation around current levels in the near-term before seeing a recovery rally into year-end.

“The CAD rallied after the start of the removal of insurance cuts by the BoC. This is likely to be a one-off level shift in CAD and we do not see the start of trend appreciation.

Slack remains in the economy, wage growth is subdued and core inflation remains low.Without significant price pressures, a highly leveraged household sector and elevated house prices, the BoC will find it difficult to start a hiking cycle and is likely to be more cautious than what market is pricing. The loonie erased its undervaluation in multilateral terms and is close to fair value, while the trade policy risk premium that had been built following softwood tariffs also has corrected. Volatility stemming from NAFTA renegotiation and more strict enforcement of US trade policy may weigh on the currency,” Barclays argues. 

Barclays targets USD/CAD at 1.27 by the end of Q3, and at 1.29 by year-end

In-terms of this week’s data, Barclays notes that the main release is Canada’s employment report  on Friday (consensus: 19k, previous: 45.3k),“ which is released simultaneously with the US NFP.

Source: Barclays Research

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