CAD: A strong hedge against energy risks – BBH
|Brown Brothers Harriman’s (BBH) Elias Haddad expects Canada’s March labor force survey to show a modest job rebound, while the Bank of Canada (BoC) can use its benign inflation backdrop to look through the Oil shock. He notes that rate hike pricing has been trimmed and continues to favor long Canadian Dollar (CAD) crosses as a hedge against a more persistent energy price shock.
Jobs data and Oil dynamics support CAD
"March labor force survey is due on Friday. The economy is expected to add +14.9k jobs after losing -83.9k in February. Encouragingly, Canada’s favorable inflation backdrop gives the Bank of Canada (BoC) a small cushion to look through the oil-price shock and refrain from raising rates in the face of a worsening labor market."
"The swaps curve has trimmed BoC rate hike bets over the next twelve months from as much as 75bps on March 26 to around 50bps currently."
"We still favor long CAD on the crosses as a good hedge against a more persistent energy price shock. Canada gets the terms of trade boost and has fiscal space to absorb some of the growth drag to domestic demand."
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