USD/CAD threatens last week's lows
Canada is an outlier right now. The core components Friday's retail sales report blew away expectations and the country is also facing higher inflation than almost anywhere. On top of that, we haven't heard from anyone at the Bank of Canada in six weeks so we have no idea if pre-emptive rate cuts are even in the cards.
The result has been that US-Canada differentials have narrowed. The Canadian 2-year yield is now just 14 basis points below the comparable Treasury.
There's a firm belief that the Canadian economy will go wherever the US economy takes it. That's backed up by generations of experience but at the same time, Canada has some deficit levers that the US doesn't. With an election coming up in three months, that money is much more likely to be spent while the US is stuck in political gridlock.
As for USD/CAD, look for more selling if it can fall below 1.3250. In the bigger picture, the 1.3180-1.3350 range dominates.
