We are pleased to bring you the latest edition of the series produced by our colleagues in RBC Capital Markets, hosted by George Davis, CMT, the award winning Chief Technical Analyst for Fixed Income and Currency Strategy.
After recent rate hikes from both the Bank of Canada and the FOMC, RBC Economics views the current levels, 5% overnight in Canada and the 5.5% Fed Funds rate, as representing terminal rates both north and south of the border. Further, rates are expected to stay at these levels until early 2024 with risks skewed towards further hikes as inflation risks persist.
George then goes on to explain how current key drivers of USDCAD affect directional bias and his forecast going forward. Broader USD direction and equity markets remain as the strongest drivers of USDCAD while crude oil is the weakest driver in the current environment. Consequently, both the USD Index and the S&P Index both point to upside risks to USDCAD. This has led George to raise his expected trading range this month to 1.3200/1.3700. Thus, rallies to 1.3550/1.3650 should be viewed as a selling opportunity, while pullbacks to 1.3350/1.3250 should be viewed as advantageous levels to buy.