Goldman Sachs: Oil And COVID In The Driver’s Seat

Goldman Sachs note that the "Canadian Dollar's status as a high-beta G10 currency makes it a natural consideration as an expression for US Dollar shorts. However, three factors prevent us from being more enthusiastic about adding USD/CAD shorts at these levels. First, Canada is experiencing a second wave of COVID cases, which may increasingly weigh on the currency if further restrictions are implemented in response. Second, CAD has a "USD-bloc" element to it such that USD depreciation tends to weigh on the Loonie more than other high-beta currencies. For instance, a 1% decline in the broad USD has historically coincided with a 0.4% depreciation in CAD vs AUD. Third, oil prices have moved lower in recent days and will continue to be an important driver of CAD positions. Although our commodity strategists remain bullish with a year-end Brent forecast of $49/bbl, they expect high spot volatility along the way. This might make CAD a less attractive choice than other pro-risk currencies to express Dollar shorts in the near-term."