6 Jan 2016
CAD: Acute pressures in early 2016 - TDS
FXStreet (Delhi) – Mazen Issa, Senior FX Strategist at TDS, sees additional risks of acute pressures on the CAD early this year driven by a corporate cash crunch, a nontrivial probability of further monetary easing, seasonal underperformance and subdued oil outlook.
Key Quotes
“The rotation to non-commodity exports has deteriorated especially in FX sensitive goods, which accounts for roughly 40% of total exports including industrial machinery and autos.
Despite the Governor noting that only half of the interest rate relief provided last year has made its way through the economy, our macro team sees a risk of further easing especially if Canada imports tighter financial conditions through Fed policy normalization.
Our commodity team expects WTI oil to remain subdued through most of 2016, not reaching the $60/bbl mark until the second half of this year. This reflects little incentive for OPEC to adjust production quotas to squeeze high cost producers and additional supply as Iran sanctions are lifted. Even if oil prices rebound, the drag to growth will persist as the price of oil would remain below levels that would incentivize additional investment.
We see extended upside risks to our Q1 and Q2 forecast of 1.40 and 1.37. Tighten trailing stops to 1.3700/20 for an initial target of 1.43. We also see value in implementing a 1.43/1.45 3-month USDCAD call spread.”
Key Quotes
“The rotation to non-commodity exports has deteriorated especially in FX sensitive goods, which accounts for roughly 40% of total exports including industrial machinery and autos.
Despite the Governor noting that only half of the interest rate relief provided last year has made its way through the economy, our macro team sees a risk of further easing especially if Canada imports tighter financial conditions through Fed policy normalization.
Our commodity team expects WTI oil to remain subdued through most of 2016, not reaching the $60/bbl mark until the second half of this year. This reflects little incentive for OPEC to adjust production quotas to squeeze high cost producers and additional supply as Iran sanctions are lifted. Even if oil prices rebound, the drag to growth will persist as the price of oil would remain below levels that would incentivize additional investment.
We see extended upside risks to our Q1 and Q2 forecast of 1.40 and 1.37. Tighten trailing stops to 1.3700/20 for an initial target of 1.43. We also see value in implementing a 1.43/1.45 3-month USDCAD call spread.”