USD/CAD shorts will be tough to maintain - TDS

According to analysts from TDS, the USD/CAD pair remains a “buy on dip” and they expect it to hold well above 1.30 for the foreseeable future. 

Key Quotes: 

“The CAD has entered the crossfire amidst a shift in tone by Governor Poloz and the recent breakdown in US-China trade talks. While the Governor has taken a positive stance on Canadian employment, we are reluctant to rely on this metric as a reason for optimism on the currency. We think markets have been too complacent on trade frictions between the US and China. Relaxing constraints on US trading partners outside of China suggest that the frictions between the two major economies will be prolonged. We think the primary transmission will be through equity markets. As a result, USDCAD shorts will be tough to maintain.”

“The CAD has attracted some attention since Poloz's comments in a recent media interview that emphasized labor markets were a more accurate reflection of the economy – despite the data unambiguously showing the opposite. In March, we took a comprehensive look at the CAD's prospects and promptly concluded that the strategic outlook is bearish. We do not think the CAD's adjustment will be impulsive, but rather a slow bleed. While cyclical drags are ebbing, USDCAD remains a buy on dip.”

“The currency will struggle to find a durable bid from a rate differential point of view. This will be almost explicitly the case with USDCAD, where it would likely be incredibly difficult for the Bank of Canada to move towards hikes in isolation of the Fed. This narrative alone has us expecting USDCAD to remain well north of 1.30 for the foreseeable future.”