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- USD/CAD’s reversal from 1.3390 finds support at 1.3100 area.
- The US dollar loses ground with the market pricing-in a Democrat victory.
- Longer-term, the Canadian dollar is expected to underperform – MUFG.
The greenback extended its reversal from last week highs at 1.3390 area on Tuesday, to find support at 1.3100 area before picking up to 1.3155 on the late US trading session.
Risk appetite hurts the USD
The USD has been trading on its back foot, with risk appetite returning to the markets in anticipation of a clear Democrat victory in the US elections. Hopes that a landslide win for Biden will contribute to unlocking a large fiscal stimulus plan have boosted equity markets, sending the safe-haven dollar tumbling.
Furthermore, news reports suggesting that Russian oil producers might be ready to accept extending the output cuts through 2021, as proposed by the OPEC+, has pushed crude prices about 3% higher. This has increased bullish traction on the commodity-sensitive CAD.
USD/CAD expected to continue underperforming – MUFG
From a wider respective, the FX Analysis Team at MUFG, warns that the Canadian dollar is facing headwinds: “Year-to-date and half-year-to-date CAD is the 2nd worst performing G10 currency. As we have stated here before, the aggressive stance of the BoC is the reason for us to expect CAD to continue to underperform in the G10 space. The expansion of the BoC’s balance sheet since the COVID crisis began amounts to 20% of GDP, compared to 14% for the Fed in the US and around 17% for the ECB.”