Loonie remains 2nd best

<p>As the US dollar rally takes center stage in global currency markets, let’s shed some light on its Canadian counterpart, which is the least underperforming […]</p>

As the US dollar rally takes center stage in global currency markets, let’s shed some light on its Canadian counterpart, which is the least underperforming currency against the greenback so far this quarter, and the only currency to have rallied against the USD over the last six months.

We anticipate fresh buying USDCAD later this evening when Bank of Canada Deputy Governor Timothy Lane delivers a speech at 15:05 Eastern (20:05 BST), titled “Are We There Yet?”, asking whether the the US and Canada have reached a level of full equilibrium after the Global Financial Crisis. As it has been inferred by BoC governor Poloz, Mr. Lane is likely answer the question with a straight “No” even when recognizing rising employment and persistent stability in the housing sector.

Waning loonie net longs

This week’s unexpected decline in July retail sales contributed to further losses in the loonie against USD and JPY. Taking a look at futures speculators’ net longs in CAD vs USD in the Chicago Mercantile Exchange, we note a 60% decline in net CAD longs from the August high, to 7,544 contracts.

The bullish case for the loonie remains highlighted by the trade pass- through from its recovering southern border, which highlighted our bearishness in NZDCAD and GBPCAD made in previous notes. We expect further buying of the dips in CADJPY, targeting 99.80s and renewed pressure on NZDCAD, eyeing 0.85. Meanwhile, USDCAD’s persistent uptrend within the 2 ½ year channel, suggests a gradual accumulation of interest towards the 1.13 before quarter-end.



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