The diverging economic outlooks of Canada and the U.S. suggest continued pressure on the Canadian dollar, they said. "We think the low domestic inflation/sluggish growth outlook for Canada will continue to contrast somewhat at least with the improving underlying fundamentals in the USD and keep a firm bid under USD/CAD," TD's strategists said.
With the U.S. dollar finding solid support in the upper C$1.1100s, TD looks for gains toward the mid-C$1.1300 area from here.
There are, however, some countervailing forces at play, TD says.
The narrowing of U.S./Canadian yield spreads in the middle section of the yield curve seems to have become "bogged down," and data on the positions of speculative accounts in futures contracts from the U.S. Commodity Futures Trading Commission shows they ramped up their negative positioning in the Canadian dollar, TD says.
"The short CAD trade is popular and while not yet necessarily 'over-populated,' it may make downside progress harder to achieve without a solid reason," TD said.
With the U.S. dollar finding solid support in the upper C$1.1100s, TD looks for gains toward the mid-C$1.1300 area from here.
There are, however, some countervailing forces at play, TD says.
The narrowing of U.S./Canadian yield spreads in the middle section of the yield curve seems to have become "bogged down," and data on the positions of speculative accounts in futures contracts from the U.S. Commodity Futures Trading Commission shows they ramped up their negative positioning in the Canadian dollar, TD says.
"The short CAD trade is popular and while not yet necessarily 'over-populated,' it may make downside progress harder to achieve without a solid reason," TD said.
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