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Mazen Issa, Senior FX Strategist at TD Securities, reaffirms the view of a weaker loonie versus the greenback following the decision of the Bank of Canada. They see slides of USD/CAD under 1.4000 as false dawns. 

Key Quotes: 

“The BOC delivered another dose of stimulus, but the more interesting aspect of this decision was the accompanying MPR which opted to present a (grim) two scenario outlook. The details send a clear message in how the market should view the CAD.”

“We are very bearish on the CAD for reasons related to the terms of trade shock, he ripple effects this will have from bankruptcies to lost incomes, and the structural imbalances of the economy (from trade to household debt). These are coming home to roost simultaneously and expeditiously. Note that Canada’s
starting point is already bad, as bankrupticies were on the rise prior to the pandemic shock.”

“USD/CAD will inevitably trade higher. We are resolute in this view. Dips in USDCAD sub-1.40 are false dawns and when liquidity permits, should be used to accumulate to existing positions. USDCAD runs cheap on our HFFV estimate; we target 1.4650.”