Bank of America Global Research discusses CAD outlook and maintains a bullish bias over the coming weeks.
"The recent rise in WTI crude oil (recent high of over $120) came alongside a sharp rise in global risk aversion and an aggressive repricing of the Fed. The negative energy supply shock kept USDCAD elevated well into March as risk-off and broad USD strength more than offset Canada’s terms-of-trade boost courtesy of high commodity prices,"BofA notes.
"As risk aversion moderated on no further escalation in the Ukraine war, CAD has since responded favorably. Nonetheless, our models indicate that CAD risk premium remains elevated, with USDCAD still some 3% above fundamental fair value. We continue to expect that as risk aversion normalizes USDCAD will continue to decline. The process could be protracted, however,"BofA adds.