The Ice storm-induced weakness in the Canadian December data could soon provide a good opportunity to close out any remaining short CAD positions, argued CIBC World Markets in a note by Andrew Grantham, an economist at CIBC.
“By spring, the loonie could start flying higher again. While the Canadian economy will not be totally sheltered from weather-induced weakness in the US during Q1, temperatures and snowfall are closer to normal and not as disruptive here,” CIBC projected.
“Judging by the great ice storm of 1998, January data could show some improvement. And firmer inflation has reduced odds of a BoC cut. We would buy the C$ on moves in USDCAD near 1.13,” CIBC advised.
Meanwhile, CIBC warned that while GBP has been feeling the love of traders recently, a lover’s tiff could actually be around the corner.
“Recent strength has come in part from expectations that the Bank of England will move before the Fed. Almost two-thirds of forecasters in recent Bloomberg polls thought UK rates would be higher by Q2 2015, compared with only 25% for the US. Judging by OIS curves, markets are also leaning that way. But we see a greater chance of a Fed hike by then—indeed a Q2 2015 move is our central forecast,” CIBC argued.
“Meanwhile, investors may be miss-pricing how quickly the BoE can raise rates when it starts, given the larger spread nowadays to mortgage rates,” CIBC added.
“As markets see both of these factors play out, that will weigh on sterling against the US$, although we expect further appreciation against the euro,” CIBC concluded.