Forex Flash: Canada/USD rate spread may erode more – TD Securities

TD Securities analysts say that the CAD’s positive correlation with risk assets has strengthened again in the past few days despite the relatively weak (44%) correlation with the S&P500 on the rolling 22-day study. "The strongest driver or the CAD remains the short-term Canada/US rate spread (softer also but standing at 49% today) which suggests that Canadian data today and tomorrow (Friday’s GDP especially) should have a big influence on the market one way or the other", wrote analysts Shaun Osborne and Greg Moore, pointing to weakening spreads in the past two weeks, currently trading at 8 month lows (76bps). "The trend suggests that markets are preparing for more erosion in Canada’s yield advantage over the US.  That should weigh on the CAD more", they added, eyeing a minor reversal and support at 1.0190/1.0210.