USD/CAD: Brexit has not materially impacted yet - TDS

According to Mark McCormick, North American Head of FX Strategy at TDS, valuation and market positioning suggest there is further scope for USD/CAD; their initial target is at 1.31.

Key Quotes:

“USD/CAD is consolidating a bit in the aftermath of the Brexit vote. The single currency reached an intraday high of 1.31 before pulling back below 1.30. The knee-jerk response to the overnight vote is for further deterioration in risk appetite but it appears broader financial contagion has been limited. We believe the risk channel (lower equities and commodities) will have the biggest impact on CAD since Canada’s economic ties with the UK are small.”

“Valuation and market positioning ahead of the vote suggest there is further scope for USD/CAD to push higher given limited risk premium and an overhang of long positioning. Our initial target is a move to 1.31.”

“The unexpected shock of Brexit has not materially impacted USD/CAD just yet. The concentration of FX moves has focused on European currencies given political and economic ramifications of the vote for the continent of Europe. That said, we do not expect USD/CAD to remain silent for too long."