Forex Flash: USD/CAD might squeeze back up to 1.0040/50 – TD Securities

Weak data reports overseas should not make much impact on the CAD, "with CAD/risk correlations dropping right off over the past few weeks (CAD/S&P 500 correlation on a rolling 22-day basis is more or less zero at the moment from +79% a month or so ago)", wrote TD Securities analysts, pointing to the importance of US-Canada debt yield spreads on the USD/CAD. "Short-term rate spreads remain an important driver of the CAD versus the USD, as we have highlighted in the recent past— especially as the risk correlation faded", said analyst Shaun Osborne and Greg Moore, observing notable narrowing short-term, undercutting the CAD, since the BoC’s more dovish rate message last month. "Longer-term spreads are moving against the CAD as well, however.  10-year US bond yields at 2.02% today are marginally above Canadian 10s for the first time since March 2012—another drag on the CAD", they continued.

TD Securities analysts think modest downside pressure is likely to reverse, "allowing for a minor squeeze back up to 1.0040/50".