USD/CAD: Worst is not over yet for CAD – MUFG
|Analysts at MUFG Bank, point out that significant oil production cuts would only dampen downside risks for the Loonie (CAD). They consider USD/CAD could test the recent top.
Key Quotes:
“The CAD like other oil-related currencies has been hit hard by the twin negative shock from COVID-19 and the collapse in the price of oil. It has sharply lifted USD/CAD up to a high of 1.4668 on the 19th March although it has since fallen back towards the 1.4000-level. It remains well above last year’s average of 1.3268.”
“The collapse in the price of Western Canada Select has been even more acute as it has fallen from just over USD30/barrel to below USD10/barrel. It continues to signal that downside risks remain in a place for the CAD which is not yet fully reflecting oil price weakness. Compared to the AUD we are less convinced that recent lows will hold for the CAD. The CAD fell to even weaker levels during the last oil price collapse in January 2016 (USD/CAD high @ 1.4690), and the situation is even more grave on this occasion.”
“We are not convinced that the recent headlines regarding significant production cuts in the oil market, of say between 10 and 15 million barrels/day, will trigger an immediate sustained reversal higher for the price of oil and the CAD.”
"BoC has lowered their key policy rate back to the effective lower bound at 0.25% and has just started QE. There is no limit on purchases with the BoC only saying it will buy a minimum of CAD5 billion/week until an economic recovery is “well underway”.
“We are not convinced that the worst is over yet for the CAD even as major oil producers are moving closer to an agreement to cut production. USD/CAD is likely to retest the recent high at 1.4668.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.