Goldman Sachs: Go Long Vs. USD On Improving Global Cyclical Backdrop

Goldman Sachs note that "among all USD crosses, we expect CAD to benefit disproportionately from more stable Fed pricing and an improved global cyclical backdrop. We therefore issue a new tactical USD/CAD short recommendation, with a target of C$1.2100 and stop at C$1.2750 (we also adjust down our 3-month USD/CAD forecast to C$1.21 from C$1.22 previously)."

• "Canada's domestic economic backdrop continues to look fairly positive: the average of the three measures of core inflation preferred by the Bank of Canada is above target at 2.5%, and while the latest labour market print was weaker than expected, the composition was fairly robust, exhibiting gains concentrated in the services sector and full-time work. The latest Q2 GDP growth data and revisions disappointed the market as well, though they partly reflected the period during which much of the country was under strict lockdowns that have now been lifted."
• "This week's Bank of Canada meeting is likely to be fairly quiet, as we expect the next tapering announcement to occur at the subsequent MPR meeting in October. However, it is possible that the BoC highlights both the recent GDP miss and risks related to increasing COVID cases, which have risen along with hospitalizations and fatalities. So far, restrictions on activity have not followed, but remain a risk if the wave fails to slow; it's worth noting, however, that Canada continues to have a good supply of MRNA vaccines, implying that boosters could be relatively easy to distribute if needed. The upcoming snap election is also a source of uncertainty and bears watching, though we don't expect the results to have a large impact on the currency. Overall, we think the domestic growth outlook, coupled with global cyclical tailwinds that should push oil prices higher, argue for a stronger CAD over the next 3 months."