Synopsis:

HSBC anticipates near-term USD/CAD upside due to broader USD strength amid election uncertainty. However, a Kamala Harris victory could trigger a reversal lower in USD/CAD, as USD sentiment shifts and the current gap between USD/CAD and rate differentials narrows.

Key Points:

• USD/CAD is currently tracking a broad USD index, with recent movement largely driven by USD sentiment.
• The upcoming US election creates near-term upside potential for USD/CAD, reflecting market caution.
• A Harris win could lead to a USD/CAD pullback as USD sentiment cools and rate differentials realign.
• Current election uncertainty sustains USD dominance, but this may change if market clarity improves post-election.

Conclusion:

HSBC expects USD/CAD to edge higher leading up to the election but suggests a Harris win could prompt a shift in USD sentiment, pulling USD/CAD lower. This potential reversal reflects the pair’s alignment with USD momentum and election-driven sentiment shifts.