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CANADA: BofA: USDCAD Spot Now Attractive For USD Bears

CANADA
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  • BofA write that USDCAD was no exception in the broad-based USD rally on the positive US NFP surprise amid elevated global geopolitical risk premium.
  • “However, with spot having rallied close to the 200d SMA resistance [...], we believe the current spot level has become attractive for USD bears to fade the USD strength in this pair. Our quarterly USDCAD forecast remains at 1.35 for 2024 year-end and we see scope for the pair to fall to 1.32 in 2025.”
  • “In the case of BoC, a positive September employment data surprise should reduce the chance of any near-term 50bp BoC rate cuts [they see +35k employment and 6.6% u/e rate vs cons 27.5k and 6.7%]. Evolution of inflation data should dictate whether to cut or pause, while evolution of employment data should dictate the size of rate cuts.”
  • “The market's terminal Fed-BoC policy rate expectation may also adjust toward our forecast, where we see both the Fed and BoC cutting cycles ending at terminal rates levels above 3% (currently 3.00-3.25% for Fed and 3% for BoC).”
  • “Over the past few weeks, we have discussed owning 1y ATMS USDCAD put at cheap implied vol levels as a way to express a medium-term bearish USD views.” 
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  • BofA write that USDCAD was no exception in the broad-based USD rally on the positive US NFP surprise amid elevated global geopolitical risk premium.
  • “However, with spot having rallied close to the 200d SMA resistance [...], we believe the current spot level has become attractive for USD bears to fade the USD strength in this pair. Our quarterly USDCAD forecast remains at 1.35 for 2024 year-end and we see scope for the pair to fall to 1.32 in 2025.”
  • “In the case of BoC, a positive September employment data surprise should reduce the chance of any near-term 50bp BoC rate cuts [they see +35k employment and 6.6% u/e rate vs cons 27.5k and 6.7%]. Evolution of inflation data should dictate whether to cut or pause, while evolution of employment data should dictate the size of rate cuts.”
  • “The market's terminal Fed-BoC policy rate expectation may also adjust toward our forecast, where we see both the Fed and BoC cutting cycles ending at terminal rates levels above 3% (currently 3.00-3.25% for Fed and 3% for BoC).”
  • “Over the past few weeks, we have discussed owning 1y ATMS USDCAD put at cheap implied vol levels as a way to express a medium-term bearish USD views.”