CAD steady, risk reversal pricing, technical lean bullish – Scotiabank

The Canadian Dollar (CAD) is down marginally, reflecting the minor lift in the US Dollar (USD) generally more than anything else. Spot remains close to our fair value estimate (1.3845) while overall mood music on the CAD is turning more bullish, essentially reflecting the increasingly negative perspective investors have on the USD outlook, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Weekly price patterns are shaping up bearishly for the USD

"This has been reflected in risk reversal pricing in other major currency pairs but CAD riskies have been catching up. USD/CAD 3m riskies are trading at 24bps, puts over calls, the largest premium for USD puts since 2009. Other tenors are reflecting similar shifts as investor demand for downside protection in funds ramps up. This is very unusual. BoC Governor Macklem and Finance Minister Champagne hold a press conference at 14.30ET at the conclusion of the Banff G7 meeting."

"While the minister and governor will address issues covered at the meeting, questions are likely to drift into domestic concerns—inflation and the rate outlook—to some extent. Higher core inflation for April makes a June rate cut highly unlikely but whether Governor Macklem chimes in on the near-term rate outlook is debatable. Market expectations have been pared back significantly. No comment on the near-term rate outlook from Macklem may see market expectations trimmed back a little more."

"USD/CAD has squeezed a little higher from yesterday’s intraday low just above 1.38 but gains are not compelling and run counter to the generally USD-negative tone on the longer run charts. Intraday, daily and—just about—weekly trend momentum studies are tilting USD bearish which should limit USD gains to the 1.39 area (former support, now resistance). Weekly price patterns are shaping up bearishly for the USD which may mean more pressure on the 1.3745/50 major support zone can develop in the next few weeks."