RBC Recommend Long GBP/CAD

Long GBP/CAD as their G10 trade of the week.

• They write “our bias is toward USD weakness this week and we play that through CAD underperformance on the crosses.”
• “While the consensus for Wednesday’s core U.S. CPI print is 0.2% M/M, there is a fairly long tail of forecasts to the upside of that and arguably an in-line outcome would be a disappointment.”
• “Against our medium-term bearish GBP view, we are tactically long GBP on the other side of short CAD.”
• “UK rate prospects have repriced to such an extent (only 40bp of cumulative hikes now priced) that firmer labour data tomorrow, earnings in particular, could cause a repricing higher in rate expectations with a positive kneejerk reaction in GBP.”
• They recommended the position with spot dealing at CAD1.7027, targeting CAD1.7350, while a stop was set at CAD1.6870.