USD/CAD: remaining biased for re-test of 2018 highs - TDS


Analysts at TD Securities explained that the Bank of Canada followed through on a widely expected 25 bp hike while the statement portrayed an upbeat tone, emphasizing the economic rotation into exports and business investment and repeating that higher rates will be warranted to keep inflation in check.

Key Quotes:

"With the Bank still on a highly data-dependent path, growth running above their projections in October will keep another 2018 rate hike in play."

"But as things stand today, the 2.8% predicted growth for 2018Q2 looks a touch optimistic, and if the economy can't clear that hurdle the most likely course for the Bank is still to stay at 1.50% into early 2019."

"Rates: Front-end yields moved modestly higher on the statement as markets moved to price in the next rate hike by December. We see value in owning the front-end here as we are biased to see it outperform the belly over the next 2-3 months."

FX: 

"USD/CAD dipped following the announcement but notable support emerges near 1.3050."

"Given the escalation in global trade tensions and a curve already reflecting "gradual" tightening suggests that the CAD's return profile remains asymmetrically tilted to the downside."

"We remain biased for USD/CAD to re-test its 2018 highs in the coming weeks and months."

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