Viraj Patel, Foreign Exchange Strategist at ING, arguments that monetary policy expectations in Canada and the US is likely to favor the upside in the USD/CAD.

Key Quotes:

“The BoC also stated that recent CAD strength has been a result of the rebound in oil prices and narrowing Fed-BoC policy expectations. Our short-term USD/CAD financial model corroborates this story, with our estimates showing that the pair should currently be trading in the 1.3450-1.3500 area.”

“We remain cautious over chasing any further USD/CAD downside for two reasons. First, BoC rate cut expectations are being underestimated and we think there is a strong chance that the central bank cuts rates again in April when the new projections are released. Second, commodity FX outperformance is usually the initial reaction to a positive shift in the risk environment; we would expect this to give way to a hawkish Fed repricing should risk-on sentiment persist”

“Hence, the relative Fed-BoC policy expectations channel is likely to work against the loonie over the coming months and with the outlook for oil prices still uncertain, we prefer to remain long USD/CAD and retain our 1M forecast of 1.40.”

Viraj Patel, Foreign Exchange Strategist at ING, arguments that monetary policy expectations in Canada and the US is likely to favor the upside in the USD/CAD.

(Market News Provided by FXstreet)

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