USD/CAD: A Deja Vu For USD/CAD Around Next Week's BoC? - BNPP

BNP Paribas FX Strategy Research discusses USD/CAD outlook ahead of next week's BoC meeting and notes over the next year, rates markets are now pricing more than 80bp of tightening from the BoC, 20bp more than is priced for the Fed and the most in the G10.

"The situation seems similar to the aftermath of the September rate hike, when the Bank had to correct course to prevent an excessive tightening of conditions. While a rate hike on January 17 now seems very possible, we would anticipate subsequent communication to sound more dovish.

Positioning now has also begun to become stretched, according to our metrics..

"Our long-term fair value model (FEER) continues to signal that levels around 1.27 are consistent with the equilibrium for USDCAD," BNPP argues. 

Source: BNP Paribas Research