Goldman Sachs: Stick With Longs

Goldman Sachs note that their "trade recommendation to short the U.S. Dollar versus an equally-weighted basket of the Canadian Dollar and Australian Dollar remains our favorite way to express our above-consensus global growth views in G10 FX. CAD, in particular, should continue to participate in broad Dollar weakness, benefiting from its effective virus control, as well as its high beta to global growth and oil prices, and the policy outlook. The virus remains relatively well-controlled in Canada, and vaccinations are underway. Recent delays to vaccine deliveries reflect only temporary supply constraints, as a production plant is re-tooled to boost capacity, and some provinces have reversed earlier decisions to hold back second doses, which initially resulted in comparatively slow distribution. Our above-consensus growth views should also support a continued rally in oil prices in 2021, reinforced by additional fiscal stimulus in the US, benefiting CAD and currencies of other oil-exporters. Finally, the relative monetary policy outlook should also favor CAD in the medium-term. While the Bank of Canada left its current policy stance unchanged, the statement hinted at upcoming tapering, provided that "the economy and inflation play out broadly in line or stronger than projected." We think the signal is consistent with our forecast for tapering in Q3 of this year, earlier than our expectation for Fed tapering in early 2022. We also continue to expect BoC liftoff in 2024Q2, and see risks skewed closer to the BoC's 2023 timeline."