USD/CAD Direction Driven By Iran Conflict, Rate Differentials, RBC Says
RBC Capital Markets on Friday said the USD/CAD pair is net down about 0.5% since its last update on March 27, rallying into Trump's self-imposed deadline and selling off as markets priced in a de-escalation in the Iran conflict.RBC, in its CAD Weekly Soundbites, said this morning's U.S. and Canada data are unlikely to change the Fed and Bank of Canada's "hold" stances for the foreseeable future. Hence, USD/CAD direction is likely to be a function of whether markets are pricing an escalation (USD-higher) or a de-escalation (USD-lower), with crude oil prices acting as a partial offset in the opposite direction.The more prolonged the Iran conflict is and its subsequent impact on energy prices and supply chains, the more likely it is that markets will focus on the monetary and fiscal responses in developed markets, RBC said.If both the Fed and the BoC are on hold, then the currently wide rate differentials will act as a floor to USD/CAD, but if the central banks' reaction functions start to show divergences, that can impact USD/CAD's direction and weaken CAD's mini-dollar status, RBC added.From a technical perspective, George Davis at RBC said a bearish trend reversal below 1.3860 has ended the near-term uptrend of the past month, with prices now probing the 200-dma at 1.3818. Below here, the focus would shift down to an old triple top from February-March at 1.3728. Initial resistance is now located at 1.3874, followed by stronger resistance at 1.3932 which has repelled four consecutive rallies since January, RBC said.
