Goldman: Still Our Preferred Long Candidate In G10

Goldman Sachs note that “Wednesday’s BoC meeting proceeded largely as expected, with the Bank hiking by 50bp and starting QT. The overall tone was hawkish, as the statement highlighted the risk of inflation expectations becoming unanchored and noted that the economy was “moving into excess demand.” Later, at the press conference, Governor Macklem stressed the need to normalize policy, expressing that the BoC might need to bring rates “modestly above neutral” to bring inflation back to target, and reiterated that the Bank was prepared to act “forcefully” in doing so. Following these events, our economists upgraded their forecasts for the BoC’s policy path to include three additional 50bp hikes in June, July, and September. Despite CAD’s underwhelming price action over the past couple of months, we still have a preference for the currency among the G10, given that it’s among the best-placed in terms of macro conditions that would support tighter policy. While CAD has underperformed its beta to oil recently, we suspect that poor risk sentiment, related to global growth and US recession concerns, and high volatility in rates are likely taking precedence over the large commodity price moves, weighing on CAD among other pro-risk commodity-linked assets like AUD. Over the short run, policy catalysts to drive CAD stronger are pretty limited, but relief in the cross-asset backdrop or a weakening bid for USD as a safe-haven asset could shift the tides in favour of CAD. We therefore stick with the Loonie as our preferred long in G10.”