Analysts at Nomura explained that the BoC and the BoE appear to be looking to normalise monetary policy, but experiencing similar difficulties.
Key Quotes:
“Both are involved in uncertain trade discussions that are weighing on investment and both have seen a softer patch of data than the market originally expected. Given it strips out the USD component and has similar risks to the front-end pricing, perhaps GBP/CAD is an RV trade worth considering.”
“Canada’s deteriorating credit growth and soft retail sales have led to short CAD becoming a consensus position and well reflected in the low valuation of CAD, in our view. While Governor Poloz was considered to be dovish by the market, he was still discussing in his recent speech the need for higher interest rates. It would likely take a severe shock to the GDP numbers tomorrow to offset that. Meanwhile, oil supply concerns after the OPEC meeting are leading to an improvement of CAD’s terms of trade that we expect will continue and should see CAD become more supported.”
“GBP, on the other hand, faces another political test next week with the Cabinet’s Chequers away day designed to decide on the long-term Brexit policy. The Cabinet is still very divided and the talks are likely to lead to further political tensions, potential resignations and leadership concerns that should weigh on GBP. Therefore, we enter into a short GBP/CAD at 1.7360, targeting 1.70, with a stop at 1.7550.”
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