USD/CAD:  We still like the upside - BBH

Analysts from Brown Brother Harriman like the upside in the USD/CAD and they look for a test of 1.33.

Key Quotes:

“Our informal and simple model for the Canadian dollar has three variables. Oil, interest rates, and general risk environment.  Over time, the coefficient of the variables can and do change. Of the three variables, the general risk environment is the most supportive of the Canadian dollar. Between the BOJ and ECB more than $150 bln a month of central bank, credits are being created. This is one of the key factors driving interest rates down in Europe and Japan.”

“The correlation of the change of the Canadian dollar and change in oil price (front-month contract for light sweet crude) over the past 60 sessions is near 0.60.  With a couple of exceptions, the correlation is as high as it has been over the past five years.”

“The 10-year interest rate differential appears to be offering better guidance for the Canadian dollar than the short-end.  The US 10-year premium over Canad peaked at the end of last year near 90 bp.  It retests it in late-January as the US dollar peaked against the Canadian dollar near CAD1.4700.”

“In recent sessions, demand for US dollar emerged near the five-day average, which is found at CAD1.3160 today, which currently is day's low. A break could see CAD1.31.  We still like the upside, and we continue to look for a test on the CAD1.33.  That area corresponds to a 38.2% retracement of this year's decline and houses the 200-day moving average.”