USD/CAD: More Convinced of the 1.35 Target - TDS
Analysts from TDS advocate holding onto long USD/CAD positions as the recent move this week along with FOMC minutes have strengthened their conviction of reaching 1.35.
“As we have highlighted over the last several weeks, we have turned bearish on CAD on the basis that the data would disappoint. We noted that the point of ‘peak optimism’ for the currency had passed following the deterioration in the trade balance to record lows. With the Fed Minutes and Dudley taking on a more hawkish tone and emphasizing that the market is unduly mispricing rate hike expectations this year, the USD extended its broad rally helping USD/CAD to push through the critical 1.3020 level, strengthening our conviction in reaching our target of 1.3500 has been strengthened.”
“We advocate holding onto long USD/CAD positions. Investors will need patience as data disappointment will become more prominent in the April and May reference periods. This is particularly the case for May as the Alberta wildfires will exert a material but temporary drag on growth. Attempts at quantifying this impact comes with a significant degree of estimation error, however.”
“The Bank of Canada will see through this we do not expect it to have an impact on its policy stance. Consequently, we expect next week’s interest rate meeting to be a staid affair, so we do not see major event risks from the Canadian side around the CAD next week.”
“Taken in conjunction with what had become a highly crowded CAD-long exposure, we think it makes sense to begin to gradually broaden short CAD positions against selective crosses. Specifically, we look to establish CAD shorts against the SEK, GBP, and JPY when the idiosyncratic factors of these three currencies turn more advantageous in the weeks and months ahead.”