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Quotes from RBC Capital Markets:

-A number of factors suggest the short-term dynamic that has driven CAD underperformance this year (third worst G10 currency after the markets’ most hated JPY and GBP) may have reached a temporary limit. Firstly, the indications are that positioning has at least moved from long CAD to neutral and possibly outright short.

-Net IMM positions as at February 26 were short (21K contracts) for the first time since August and this week’s data will probably show at least a small extensionof that positioning. Similarly, USD/CAD risk reversals have moved from a two year low premium for calls over puts (0.8 in 3m) at the turn of the year to premium bang in line with its postcrisis average (3m at 1.4).

-Secondly, although the further watering-down of the tightening bias in the BoC statement this week pushes out the prospect of the first hike, the fact that the bias survived at all should also be taken as a strong message that the BoC sees the risk of cuts as currently negligible. With the OIS curve still priced for a 25-30% chance of a 25bp cut by mid-year, relatively near-term rate expectations are arguably already in overshooting territory.

-Finally, the negative spread that Canadian oil prices carry to international benchmarks is now narrowing and the US State
Department’s provisional verdict that there is no reason to block the Keystone XL pipeline should keep this trend intact, though a formal verdict is still several weeks away.


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