Is additional US outperformance needed for CAD shorts to work?
Having passed up multiple opportunities to talk down the Canadian dollar in statements and communications so far this year, we doubt this week’s Bank of Canada decision will be any different. The central bank’s easing bias is very clear according to the ‘balance of risks’, and there appears to be a reluctance to enforce any degree of currency guidance in contrast to the RBA, RBNZ and the ECB. Nonetheless, markets should not interpret this as tolerance of a stronger CAD: after the ‘temporary’ upside price shock via pass-through is absorbed, emphasis on a weaker currency to ‘provide support’ will continue. However, realising weakness is largely out of the BoC’s hands.
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