Forex: Fair value of USD/CAD is 1.00 – Credit Agricole

on Nov 13, 2013
Updated: Oct 21, 2019

**, Wednesday 13 November:**

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The combination of a dovish tilt by the Bank of Canada and the US Fed’s plans to reduce the pace of its quantitative easing programme has pushed the USD/CAD up 5.72 percent so far this year. However, the pair has been confined to the range 1.0134 and 1.0609 since May and analysts at Credit Agricole believe a turn towards the lower end of that range is the more likely scenario in the short-term, as opposed to a breakout to new highs.

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Credit Agricole expects the Bank of Canada to remain on hold over the coming months, implementing a wait-and-see approach. “Against this backdrop, the BoC will need to see further disinflation forces – perhaps a drop below the lower bound of the 1% inflation target – to ease policy.”

According to the cyclical model used by the French bank, the fair value for the USD/CAD is 1.00. On this footing, the Canadian dollar is trading cheaply relative to its US peer and the pair could drift lower towards year-end.
But although the pair could decline in the short-term, Credit Agricole suspects that “the diverging outlook for monetary policy in both nations” is likely to drive the quote higher in 2014.

The USD/CAD has edged lower since yesterday briefly trading above 1.05, reaching a 70-day high of 1.0509. The bulls are still struggling to push the pair above its four-month resistance, as projected from the two-year top of 1.0609. A decisive move above the psychological mark of 1.05 could open the room for further gains at least to 1.06.
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As against that, the Relative Strength Index has gradually slipped so far this week, signifying fading bullish momentum. The impetus gauge may yet rebound to near its support extended from 10 September.
To the downside, the first strong support could be anticipated around the 100-day SMA, currently hovering just below 1.04.
Right now, the USD/CAD is trading at around 1.0496, down 0.01 percent intraday.
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