USD/CAD rally likely to extend towards 1.31 in Q1 2018 – Lloyds Bank

The USD/CAD pair has consolidated near the current upper bound of its medium range, around 1.29 over the last month, noted Lloyds Bank in a research report. The pair has been dragged in the opposing directions by interest rates and oil prices. The two-year U.S.-Canadian interest rate differential continues to be in an uptrend from its September low, assisting USD/CAD appreciation. But oil prices, which rose sharply to a new multi-year high above $65/bbl, have acted as a counterbalance, stemming CAD losses.

Interest rate differentials are expected to put additional upward pressure on the USD/CAD pair. The U.S. Fed is expected to hike three times next year, while the BoC is likely to hike just twice. Given the scope for further position reduction among entrenched CAD longs, the USD/CAD rally is expected to extend towards 1.31 in the first quarter of 2018, stated Lloyds Bank.

“However, beyond that, a sustained increase in oil prices, driven by higher production costs, has potential to provide support to the Canadian dollar. We anticipate the pair falling towards 1.24 by end-2018”, added Lloyds Bank.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bullish at 125.02, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -16.0459. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest