We retain a view for long USDCAD and, as such, we are re-entering a position as trade of the week. We have held a bearish view on Canada for some time, but the drivers for such a position continue to increase with time, in our view.
On the Canadian side we see several risks over the next fortnight that reaffirm our bearish view:
1. Oil continues to come under pressure. The risk remains further seasonality weakening over September, and the oil drop triggers renewed economic weakness and the BOC may ease again this year.
2. For BOC policy – we continue to hold expectations that the central bank will need to adjust its forecasts, and this dovishness may appear in both data and communications ahead of the October MPR. The price of WTI is $40/bbl, nearly $20 below the Bank of Canada’s assumption at the July (page 9 of the July MPR).
3. Rates has room to continue to price in a cut this year, only 15bps has been priced into the curve by early 2016.
4. Economic data in Canada is light – but the BOC’s Schembri’s will be speaking on Wednesday. The topic of the speech is housing markets – but Schembri’s speech will be open to the press so we expect the Q&A could lead to greater CAD volatility
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