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Commodity prices are robust, with crude oil piercing the $60 threshold for the first time since November last year, and Canada has produced some quite positive economic data in the past few days – in the form of the 35.9K gain in jobs in April, as well as the slightly better than expected CAD1.1bn trade surplus and 6.3% gain in motor vehicle sales for March – yet on current form, this will be the CAD’s first down week against the USD since late March. While the trend lower in USD/CAD has looked a little “ripe” from a market point of view – the fall from 1.25 to below 1.15 was essentially a one way street without any significant correction –traders do not detect any major fundamental misalignment in the USD/CAD exchange rate at the moment. In fact, the most recent of fair value assessment indicated that the CAD was extremely close to its fundamental equilibrium value against the USD.

Some think the current spike in USD/CAD is merely a correction and one that is likely to be relatively short-lived, given that the trend lower remains well entrenched from a technical point of view. Moreover, while the speculative community appears to have ditched its CAD-negative view and turned long CAD finally, aggregate positioning remains relatively low; there is ample room for long positioning to expand in other words. Some remain constructive on the CAD’s outlook versus the USD overall but the pace of the rally may slow a little after the break neck gains seen in the past few weeks (which may lead to some CAD underperformance on the crosses);

Trade Idea:

Short USD/CAD at current spot (1.1743), risking a relatively tight 1.1795. If stopped, look to short again closer to the 200-day MA (1.1905 today).