NZD/CAD: Goldman: Stick With Shorts; Extending Target

Goldman Sachs note that last week saw “NZD/CAD hit the target on our trade recommendation to go tactically short, and we continue to think that the underlying rationale for the position should continue to drive the cross lower. The broad USD remains strong, which should support CAD as a member of the “Dollar-bloc”; said differently, CAD historically tends to benefit against other pro-cyclical crosses in a more defensive backdrop of lower equity prices and a stronger USD. Energy prices are also expected to continue to outperform (even if spot prices have pulled back), and the BoC continues to send hawkish signals – last week’s CPI report reinforces that view. On the policy front, our rates strategists see room for a reversal of the recent dovish repricing in CAD rates and expect year-end pricing to revisit recent highs. In contrast, we do not expect the RBNZ to deliver on its guidance for the terminal rate, despite more hawkish signalling at its latest meeting. For these reasons, we are reiterating our trade recommendation and extending the target and stop on the trade to C$0.7850 and C$0.8200 respectively. This week’s Business Outlook Survey and employment report in Canada will be key catalysts for the policy outlook, and we expect they will confirm the need for continued rapid policy tightening.”