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CANADA: Deutsche Bank See USDCAD As One Of Most Under-Priced FX Crosses

CANADA
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  • Deutsche Bank see a large hit to Canadian aggregate demand in the event of 25% tariffs, pulling Canada into a recession that will be reinforced by the limited ability for a fiscal response as a result of political paralysis.
  • Monetary policy would be the “only other stimulative option” in this situation with DB seeing a terminal policy rate falling to a least 1.5% vs the 2.75% currently priced. That would widen the Fed-BoC policy gap to at least 250bp.
  • In this scenario, they see USDCAD moving to “at least 1.53, with a very real possibility that it tests the 2002 all-time highs of 1.61. By extension, USD/CAD is one of the most under-priced FX crosses for an FX trade war.”

 

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  • Deutsche Bank see a large hit to Canadian aggregate demand in the event of 25% tariffs, pulling Canada into a recession that will be reinforced by the limited ability for a fiscal response as a result of political paralysis.
  • Monetary policy would be the “only other stimulative option” in this situation with DB seeing a terminal policy rate falling to a least 1.5% vs the 2.75% currently priced. That would widen the Fed-BoC policy gap to at least 250bp.
  • In this scenario, they see USDCAD moving to “at least 1.53, with a very real possibility that it tests the 2002 all-time highs of 1.61. By extension, USD/CAD is one of the most under-priced FX crosses for an FX trade war.”