CAD: Still look for weakness to persist in Q4 - TDS

Mark McCormick, Research Analyst at TDS, suggests that the CAD was the weakest performing major currency in Q3, dropping nearly 2% and for much of September, it has spent most of the month north of the 1.30 level.

Key Quotes

“The market has focused in on a few key drivers over the past few months: the relative outlook between the Fed and the BoC (and by extension the data) and oil prices. The near-term risks favor USDCAD downside if the Fed punts to December, but we see strong support near 1.2950. Even so, we still look for CAD weakness to persist in Q4 as headwinds are building.

For the Fed and the BoC policy divergence is likely to shift back on the markets radar screen next quarter. The catalyst for a weaker CAD could come from the BoC this time—who recently shifted to a dovish from neutral tone in light of a string of weaker data releases. This also reflects the fact that the non-energy narrative has failed to gather steam. The result of this shift is likely to see a pickup in the correlation between USDCAD and data surprises as a reflection of the possible policy divergence over the coming few months.”