The Canadian dollar was saved from lower ground thanks to the Saudis and their talking up of oil prices.
Will this last? Not so fast?
Here is their view, courtesy of eFXnews:
The rates market is barely pricing in any probability of BoC easing, a major disconnect given still low energy prices and signs of manufacturing turning over, notes Morgan Stanley.
“In short, we have a difficult time seeing how Canada will muster sustainable growth over the medium term, especially with an over-levered housing market and the knock-on effects of lower terms of trade yet to fully filter through to employment, wages and spending. With the Fed set to begin a tightening cycle in December, we think the BoC may well move in the other direction,” MS argues.
MS maintains a long USD/CAD position in its strategic portfolio from around 1.3287, with a stop at 1.3050, and a target at 1.40.
“The key risk to this trade is a surge in oil prices which would help CAD sentiment near-term,” MS adds.
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