Without robust growth, portfolio flows will be stagnant
Ongoing Bank of Canada accommodation has driven CAD underperformance this year. With Q1 GDP expected to fall below 2% annualised in Friday’s release – the weakest since 2012 – a bias change is unlikely at next week’s decision. However, CAD losses have stalled since Q1, and we suspect this is largely due to unwinding of crowded shorts. FX-specific positions aside, balance of payments data show that foreign interest in Canadian bond markets is also returning. Yet, as these flows are largely into the corporate sector, they will be hard to sustain or justify if growth continues to stagnate.
Read the full report: UBS