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TD: USDCAD Below 1.33 Path Of Least Resistance

CANADA
  • TD do not believe a single 25bp hike will be enough to bring the economy back into balance and continue to look for another rate hike in July for a 5.00% terminal rate.
  • Trades: look to take profit on the paid Sept-Oct meeting gap trade as it nears target. Reiterate that the flattener theme is the appropriate bias for now as we continue to emphasize steepeners are the trade for when we see confidence in cuts coming 3-4 months down the road, which they currently don’t see until 2Q24.
  • USDCAD needs to move lower to reprice and TD continue to see a break below 1.33 as the path of least resistance. A benign US CPI and a Fed that “skips" is a best case for CAD next week, reinforcing the downward bias in the USD and boost risk. Both would be nice tailwinds for CAD that should also outperform most G10 crosses on rates of momentum.
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