Goldman Sachs: Rates Now, Oil Later

Goldman Sachs note that "USD/CAD is notable for its balanced sensitivity to rate differentials and oil prices. Over the last few months, CAD has been one of the best-performing currencies thanks in large part to CAD rates keeping pace with the U.S. duration selloff. We think this can extend further - our economists expect the BoC to announce this week that it will start tapering asset purchases, and our rates strategists expect the belly of the curve to underperform as a result. Beyond this horizon, we expect CAD to be further supported by higher oil prices as the global demand recovery outpaces supply - our commodity strategists expect oil to reach $80 over the summer and remain elevated for the rest of the year. As a rule of thumb, a 1% change in the price of oil translates to about 8bp for USD/CAD. Taking all of this into account, we are lowering our 3-month forecast to C$1.23, and it remains one of our favored expressions for the reflation trade."