USD/CAD Seen Within 1.28-1.32 in the Near Term – Rabobank
Christian Lawrence, Strategist at Rabobank, sees the pair extending its rangebound pattern into the FOMC meeting in June.
“FOMC rhetoric erred on the more hawkish side in May as it appeared the FOMC was trying to push the market into pricing more in with respect to a potential June hike”.
“The Fed clearly wants to keep its options open and with only a 4% chance of a hike in early May it was perhaps fearful that if they do decide to move in June the market would be unprepared and such a decision would result in undesirable market instability”.
“Although we did see as much as a 34% chance of a 25bp hike in June in the aftermath of Fed speeches, this has faded again down to 18% which we still view as mispriced given that we do expect the Fed to hike in June”.
“These fluctuations in market expectations pushed the USD/CAD interest rate spread which in turn led to CAD underperformance relative to oil prices”.
“In the near term, this dynamic is likely to remain in place and so June really will be key for USD/CAD, however, until that time expect the 1.28 to 1.32 range to hold”.