USD/CAD a Buy say Citi eyeing Labour Market Divergence

Analysts at the world's largest foreign exchange dealer are backing USD/CAD higher but TD Securities take an opposing view.

USD/CAD will probably rise all the way up to 1.3595 over coming days as data is likely to come out worse for Canada than the US argue analysts at Citibank.

The call made ahead of the new week was looking to be a good one with the USD/CAD rallying on the 1st of November with the heightened uncertainty provided by Trump's rise in the polls proving to be problematic for the Greenback.

The dynamic could spoil Citi's call.

Citi are however expecting USD/CAD upside on a divergence in labour market data due on Friday. 

"It is very likely that Canada’s labour report is weak (especially in full time) and stands out compared to a stronger US NFP,” say Citi in remarks seen by the eFXNews agency.

They further see a failure of the OPEC deal as another risk to the Canadian Dollar (loonie), especially after negative headlines over the weekend which suggested a supply cap deal was far from being close to implementation.

Analysts at Citi also see a speech on Tuesday by Bank of Canada’s Poloz and potentially erring on the bearish side.

Finally, they see markets being vulnerable to a risk off trading environment as dragging further on the loonie more than the USD.

“Broadly, we want to point out that markets may be vulnerable to ‘risk off’ or defensive trading. Note on Thursday FX markets broke through the lows in ADXY.

“Oil is trading below $50/bbl again. S&P is at the lows for September. Italian and Spanish CDS jumped on Friday.

“These are all signs of further defensiveness(with equitie (with equities being the most critical for a risk/EM view.)

“This flags bearish risks moving forward,” warned the note.

Citi advocate buying the pair at 1.3415, with a stop at 1.3305 and an upside target at the aforesaid 1.3595.

TD provide alternative

In contrast to Citi’s recommendation, analysts at TD Securities suggest fading the pair at 1.3450, perhaps down to fair value at 1.3250ish.

They see this as due to a lack of upside for the US dollar now that a high probability of a December interest rate hike has already been priced fully in, and therefore only much higher inflation data could push the currency out of its ranges.

However, they also share Citi’s slightly negative bias in relation to Canadian data out during the week, and expect growth data to show a decline.

“For now, we like fading USDCAD rallies ahead of 1.3450, but we suspect that dips will be brief and shallow,” commented TD Securities.