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In view of analysts at Nordea Markets, CAD is maybe not among the absolute worst performers after a curve inversion, but they still see a more than decent dovish re-pricing scope for BoC.

Key Quotes

“It seems as if BoC is narrowly focusing (some would call them obsessed) on the trade war (who isn’t?), and the latest marked shift in rhetoric came just after Trumps escalation in May, when BoC wrote on its 29th of May meeting that  “”¦the recent escalation of trade conflicts is heightening uncertainty about economic prospects. In addition, trade restrictions introduced by China are having direct effects on Canadian exports.”

“Could the latest 10% threat be just what Poloz and co needed  as an excuse to take another dovish shift in early September? We think so. The Canadian yield curve inversion is much worse than the US ditto, so cuts are needed (ASAP!).”

“Furthermore, the CAD has so far weathered the trade/cold war storm decently as USDCAD has had a negative 100-day correlation to USD/CNY. Don’t expect that negative correlation to persist. Canada is (also) very China dependent.”