USD/CAD: Risks Look Underpriced For CAD; Where To Target? - BofAML

Bank of America Merrill Lynch Research discusses USD/CAD outlook and notes that at present levels, the Canadian dollar looks to be pricing in something close to a best-case scenario - namely, a benign outcome to the upcoming 6th round of NAFTA negotiations, a subdued pace of Fed hikes over the next two years and oil around cyclical highs. 
"Our central scenario is for a benign outcome to the NAFTA talks, but we continue to be cognizant of tail risks. Our US Economics team is calling for three (risk of four) Fed hikes in 2018, followed by three in 2019," BofAML argues. 
We see risks to US vs. Canada monetary policy - the key medium-term driver of the exchange rate - as being skewed to the upside and think that CAD may underperform on the crosses... Our forecast for USD-CAD rising to 1.33 by Q2 2018 remains in place for now," BofAML adds.