USD/CAD observed volatility has eased back significantly, as the loonie seems to be trading again as an extension of US-growth sentiment – and is therefore more correlated with USD, ING's FX analysts Francesco Pesole and Chris Turner note.
The case for a return above 1.40 is now quite compelling
"May has started on a soft tone for CAD as Prime Minister Mark Carney’s first trip to meet Trump didn’t suggest that US-Canada tensions will abate soon. Renegotiations of the USMCA won’t be as quick as transcontinental trade deals, either for the US or Canada."
"The short-term risks are moderately on the upside for USD/CAD, as the pair’s short-term fair value still sits close to 1.42. Some risk premium on USD should remain, but the case for a return above 1.40 is now quite compelling, also as domestic data deterioration may prompt the Bank of Canada to cut rates again in June."
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