Danske Research discusses USD/CAD outlook and expects the cross to moves towards 1.33 in 1-month, and 1.31 in 3-months.
“We expect the Bank of Canada to stay on hold over the coming 12M, while markets price around 50% probability of a cut over the same time horizon. In our view, the dovish expectation largely reflects markets’ FOMC pricing, leaving less scope for the relative rate to send the cross lower.
This said, with our expectation of a moderate global recovery and higher oil prices, we expect the cross to move lower eventually. Long covering should support this, as CAD positioning has become stretched short according to CFTC IMM data,” Danske notes.
“Fundamentally, our long-term PPP models suggest the CAD remains heavily undervalued, with the model estimate at 1.20,” Danske adds.