renewed decline in oil prices and last week’s dovish tilt from the BoC
(“risks to the profile for inflation have tilted somewhat to the
downside since July”) have put USD/CAD in a very precarious position.
Against that backdrop we can’t confidently argue that USD/CAD will stick
to its broad 1.28-1.32 range that has held for the better part of three
But the USD likely trades on the back foot next week amid a steady
hand from the Fed, accompanied by a dovish dot plot profile including
just 1 hike this year (and possibly a couple individual dots in favour
of no move in 2016) along with another 25bp lopped off the long term
Canadian growth prospects look perky as activity comes back on stream
after the Alberta fires and as Trudeau’s fiscal stimulus kicks into
balance still feel selling USD/CAD will ultimately prove more rewarding
trade but patience is required. USD/CAD a sell at 1.3250 with a tight
remain of the view that the BoJ is close to the extremes of its JGB
asset purchase program and that it is probably unwilling to open up
other asset purchase strategies because of the potential costs involved.
We do expect to see 10bps of NIRP too (i.e. -0.2%), given the extent to
which depository corporations are long cash. Thus, given the market’s
reaction to NIRP in January, the obvious point to make here is that we
should expect to see some pretty violent swings in the ¥ Wed/Thu next
the Fed on hold, the possibility that we see another 12.5/25bps lopped
off the longer run dots, the risks are clearly to the downside for $/¥.
We target 100, but see it lower.