USD/CAD: continuing to be driven by rates - Nomura

Analysts at Nomura explained that USD/CAD is continuing to be driven by rates.

Key Quotes:

"Continuing to be driven by rates As we have highlighted previously, USD/CAD has been more highly correlated with moves in the 2yr and 5yr US-Canada yield spreads compared with oil price movements over the past six months.

In our opinion, based on this sensitivity, the BoC’s more cautious stance and paring back of market expectations for the tightening cycle, combined with skew in market positioning (with the latest CFTC report showing leveraged funds and asset managers remain net long CAD) and positive USD sentiment USD/CAD should continue to move higher in the near term. We remain tactically long USD/CAD via a two-week 1.2750-1.2900 call spread, due to expire on 6 November."