We expect Fed Chair Yellen to deliver a stronger signal at Jackson Hole about the likelihood of
near-term rate hike and retain our view that the next increase will occur in September. Given
low market expectations, the front end of the US yields curve could adjust sharply to price in a
September or December hike, although the move would more likely be one-off in nature, due
to a Fed that is more willing to accept overshoots in is dual mandate. Our analysis suggests
that commodity currencies such as the CAD, NOK and AUD will be most sensitive to a
repricing of the US rates outlook (Figure 3), with the CAD most vulnerable to a US rates move,
given recent weakness in Canada’s employment gains and retail sales, which have increased
downside risks to growth. In contrast, the recent inflation surprise in Norway and growth
stability in Australia could mean better buffers for the NOK and AUD. We recommend a
tactical long USDCAD position (spot ref: 1.2872), targeting 1.3180 with a stop-loss of 1.2680.
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