Macro FX Ideas: Buy USD/CAD - Westpac

Analysts at Westpac offered a buy USD/CAD (diverging policy stances) trade plan.

Key Quotes:

"Entry: Buy 100% at 1.3080; Stop: 1.2980; Target: 1.3400

Rationale:

Diverging Central Bank bias: Fed officials have been expressing their comfort with a potential three hikes this year and that March could be a live meeting. Markets are pricing in about a 20% chance of a March 15 hike. There is ample scope for that to rise near term (Chair Yellen delivers her semi-annual 14/15 Feb). The BoC retains its dovish bias and Governor Poloz stressed the “uncertainty” they face especially should NAFTA be renegotiated.

The USD has corrected. Since late December the USD has been correcting the Trump Trade. USD/CAD more than unwound the Trump gains to reach levels last seen August 2016, only to bounce off the psychological 1.3000 level in recent days. Technical indicators have become USD supportive too, the USD index bouncing off 100.0 support, suggesting that a range low has been seen and that USD/CAD could rebound toward December's highs. But, price action in some currencies is erratic, i.e. GBP fell 1% intraday 7 Feb only to fully retrace that and some on little news - and as such we'd prefer to buy USD/CAD on a potential dip back beneath 1.31 rather than current levels (1.3165)."