USD/CAD to drop towards 1.29 as BoC not worried about loonie strength – Credit Suisse

Strategists at Credit Suisse revise the USD/CAD target from 1.3150 to 1.2900, as recent Bank of Canada (BoC) official speeches suggest low levels of concern for priced in policy expectations and reduce potential for dovish surprises. The loonie is consolidating just above 1.3050.

Key quotes

“With a strong focus on communication and on the Bank’s long-term policy framework, BoC officials have for the past 2 weeks kept at a considerable distance from considerations on the near-term policy outlook. This is notable as BoC policy expectations remain amongst the most hawkish in G10, and especially against the Fed.”

“Forward OIS rates have now for many months priced in a policy differential that widens steadily in favour of a more hawkish BoC, compared to the Fed. The fact that BoC rhetoric has been devoid of any consideration on this topic despite its lasting presence signals in our view that the issue does not sit high in the list of urgent BoC priorities, and reduces the potential for dovish surprises from next week’s meeting.”

“The USD/CAD pair can test the 1.2965 low from 6 January and eventually pushing lower towards 1.29.”