USD/CAD inter-markets: looking to extend the breakout

USD/CAD is trading in levels last seen in April above the 1.3200 handle, once again boosted by increasing oil-induced CAD weakness. In fact, the barrel of West Texas Intermediate has dropped to 2-month lows in the $43.20 region, influenced by renewed concerns over the supply glut following the latest report of the US drilling activity measured by Baker Hughes (Friday).

Yield spread differentials in the 2-year benchmark from US and Canada keeps favouring the up tick in the greenback so far today, although spot seems to have been paying less and less attention to the evolution of this ‘indicator’, leaving all the focus to crude oil dynamics.

Ahead in the week, the FOMC gathering on Wednesday and Canadian/US GDP figures on Friday will be the salient points in the weekly docket, apart from the usual reports on crude inventories by the API (Tuesday) and EIA (Wednesday).

Banning any surprise in the very near term, the Committee is seen keeping its cautious tone. In addition, US GDP figures should keep the good path in the US, while the Canadian economy is expected to have contracted 0.4% inter-month during May.

That said, buying dips in USD/CAD does look logical-ish against the backdrop of a potential re-test of the 1.33 handle and above in the shorter run.