Bank of America Merrill Research discusses USD/CAD outlook into the BoC January policy meeting on Wednesday.
"We expect the Bank of Canada (BoC) to hike 25bp on 17 January to put the overnight rate target at 1.25%...
"Our call is that the BoC will follow through with a hike at the January meeting.If delivered, USDCAD may sell off by perhaps a vol temporarily given the event is about 80% priced.
If BoC opts to wait given NAFTA risks and remaining uncertainty regarding the data, we think USDCAD couldpotentially rally by around 2% in a straight line. The tone of the statement will determine the extent of follow through, in our view.
We continue to see upside risks to USDCAD over the next several weeks...We are highly skeptical that the next month will be as favorably bearish USDCAD as the last," BofAML argues.