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Jan 08 - 10:55 AM

Credit Agricole: Insights on USD/CAD Fair Value According to Quant Model

By eFXdata  —  Jan 08 - 10:30 AM

Synopsis:

Credit Agricole's recent analysis using their quantitative model provides insights into the fair value of the USD/CAD currency pair, influenced by various economic factors.

Key Insights:

  1. Model Stability and Fair Value Estimation:

    • The primary model for USD/CAD has been unstable for over a month.
    • The secondary model estimates the fair value of USD/CAD to have decreased slightly from 1.3304 to 1.3284.
  2. Factors Affecting Fair Value:

    • The decline in fair value is attributed to higher oil prices and a reduced US-Canadian short-term rates differential.
    • Conversely, weaker global equities and a higher US-Canadian bond yield spread have supported the fair value of USD/CAD.
  3. Current Position of USD/CAD Relative to Fair Value:

    • Although USD/CAD is trailing behind the fall in its estimated fair value, it hasn't reached the two standard deviation mark above fair value.
    • This deviation level is generally required to trigger a sell trade when using a secondary model for fair value estimation.

Conclusion:

Credit Agricole's quantitative model analysis of USD/CAD highlights a slight decrease in its fair value, influenced by oil prices, interest rate differentials, and equity market trends. While the currency pair is lagging behind this fair value change, it has not yet reached a significant deviation that would typically suggest a selling strategy. This analysis offers a nuanced view of the USD/CAD pair for market watchers and traders, emphasizing the importance of multiple economic indicators in currency valuation.

Source:
Crédit Agricole Research/Market Commentary

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