The Canadian dollar enjoyed the hawkish hike as well as strong data in Canada in weak figures in the US. Has it gone too far? Is the C$ too expensive?
Here is their view, courtesy of eFXnews:
CAD Has Gone Too Far; What’s The Trade? – Nordea
Nordea FX Strategy Research advises against ‘extrapolating’ BoC hawkish shift noticing that CAD has gone too far.
“The Bank of Canada hiked rates fairly hawkishly in July which sent USD/CAD below 1.28. At minimum a period of consolidation is likely, given that the CAD is now substantially stronger than the BoC expected in its MPR. This represents a significant tightening of monetary conditions. Moreover, USD/CAD also (still) trades too low versus rate spreads and versus oil prices,” Nordea argues.
“Indeed, the mixture of industrial metals rising, oil prices struggling and China credit expansion picking up suggests that AUD/CAD longs could offer decent risk/reward,” Nordea advises.
CAD: Market Pricing For BoC Becomes Too Aggressive; Where To Target? – Danske
Danske Bank FX Strategy Research argues while the BoC’s July hike marked a substantial turnaround in its communication, the subsequent CAD strength post the meeting looks stretched.
“In our view, market pricing of the BoC has become too aggressive, with markets pricing in another two full 25bp hikes for the coming year. On balance, we therefore see relative rates as CAD negative, even though Canadian monetary policy is highly linked to the Fed,” Danske adds.
In line with this view, Danske targets a recovery in USD/CAD towards 1.28 in 1-month and 1.30 in 3-months.
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