MS have put out a trade...............>

DOLLAR-CANADA: MS have put out a trade recommendation and like to sell USDCAD at

market with a target of C$1.2200 and stop at C$1.3050. MS note, the rally in

USDCAD on the back of the US imposing trade tariffs on Canadian steel imports

provides a good selling opportunity, we think. First, US economic advisor

Kudlow's comments that trade escalation may weaken the US economy suggest that

trade escalation is unlikely, supporting our base case that a negotiated,

relatively moderate outcome is one that is more likely, which should help CAD

rally. Second, the implementation of the steel tariffs is unlikely to stop the

BoC from hiking rates we think, as they have just shifted to a hawkish stance in

their latest statement and trade policy uncertainty has been factored into their

decision. Markets are currently pricing about 40bp of BoC hikes for this year,

giving a bit of room for more hikes to be priced. Third, three out of four

factors in our USD scorecard have turned around, suggesting USD weakness is back

on the cards. Fourth, CAD positioning is still short, suggesting some support

for CAD as shorts are unwound. A risk to the trade is a dovish turn in the BoC,

which would weaken the CAD.