In the latest client note, Goldman Sachs & Co. strategists Zach Pandl and Karen Fishman, recommended going short on the Canadian dollar vs. the US dollar and the Yen, as they expect the Bank of Canada (BOC) to soon join other central banks in a dovish shift.
Key Quotes:
“Unlike most of its G10 peers, the BOC has not signaled a readiness to ease policy “” but we think that shift will be coming soon.
As an open economy with a substantial commodity sector, any further weakness in global growth should eventually weigh on Canadian output.
Risks to the call, including the potential for a more dovish Federal Reserve and the possibility that the BOC may be unwilling to ease without obvious signs of weakness in Canadian growth or inflation.
But any BOC rate-cut signal would lead speculators to trim long positions, while also potentially pushing rate spreads against Canada’s currency.
We set our trade target at 1.360 and stop at 1.305.
Short CAD may also be paired with long JPY in part for more direct exposure to weaker global growth.”
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