USD/CAD to move above 1.30 by end Q3

The BoC's decision to cut its official rate by 25bp to 0.5% at its 15 July policy meeting pushed USD/CAD to a new 6-year high of 1.2959. The cut occurredagainst the backdrop of a continued weakening in both commodity prices and the Canadian economy. It was clear from the BoC's accompanyingstatement that it was particularly concerned about the impact of weaker oil prices and the subdued growth in non-energy exports to the US.

Investment intentions among Canadian resource-related companies have dropped by up to 40% over the past few months, while mining output hascontracted by over 6% in the past year. Technically, the 2009 high of 1.3065 is likely to act as near-term resistance and, above that, 1.34/1.35, says Lloyds Bank. 

With US interest rates expected to rise in H2 and growth differentials firming in the US's favour, Lloyds Bank expecs the USD/CAD to move above 1.30 by end Q3. However, the bank says that the positioning leaves the CAD vulnerable to a potential short squeeze. Further out, CAD is seemed to be firm in line with AUD, supported by a recovery in western growth and commodity prices, adds Lloyds Bank.