A note from TorDom on the Canadian dollar

In summary:

CAD crossfire:

  • CAD has attracted some attention since Poloz's comments in a recent media interview that emphasized labor markets were a more accurate reflection of the economy - despite the data unambiguously showing the opposite.
  • recent breakdown in US-China trade talks … markets have been too complacent on trade frictions between the US and China

Relaxing constraints on US trading partners outside of China suggest that the frictions between the two major economies will be prolonged. We think the primary transmission will be through equity markets. As a result, USDCAD shorts will be tough to maintain.

CAD

  • strategic outlook is bearish
  • We do not think the CAD's adjustment will be impulsive, but rather a slow bleed
  • cyclical drags are ebbing
  • USDCAD remains a buy on dip.
  • The currency will struggle to find a durable bid from a rate differential point of view. This will be almost explicitly the case with USDCAD, where it would likely be incredibly difficult for the Bank of Canada to move towards hikes in isolation of the Fed. This narrative alone has us expecting USDCAD to remain well north of 1.30 for the foreseeable future