CITI: Spot CAD: Bank of Canada and PCE

From the FXWW Chatroom: There’s no point tapping a dead maple tree here so let’s just revisit a few points from yesterday’s update:  the break through the former February highs (1.3210-12) saw what looked to be stop related buying. We were buyers of CAD (fading the move) from then on across client segments (as the month end report suggested). The squeeze in USDCAD and (especially) cross CAD was a bigger driver in terms of direction. Remember from yesterday the fact that “CAD buying by Hedge Funds and Real Money has reached the 99th %’ile in Citi’s flows.”
Elsewhere across G10 the market sold USDs at bad levels only to buy them back after a FI squeeze (post Williams and then Dudley) in a perfect repeat of the day prior. Despite the large move into Trump, the second he stopped speaking, USDJPY never looked back. Now attention turns to PCE data at 08:30 EST and I think the market is realizing that with Trump over it’s all about the Fed they may not own all the USDs they want. Hence they need reasons and something in the vicinity of the PCE estimates to buy USDs at bad levels.
Even though I think RM is still much too long CAD, I think the worst is over for the squeeze and it may prove to be lower beta moving forward. Things like CADNOK are at support and things like AUDCAD are within fading territory.
As for the Bank of Canada, there is no presser or MPR and I am expecting something like: CURRENT STANCE OF MONETARY POLICY IS STILL APPROPRIATE: BOC. Data has been good (see below) and they would really be pushing it to point out downside risks in any significant way. That could weigh on USDCAD later in the day, especially if PCE is not up to the market’s expectations. See the STIRT preview here.

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