The Canadian dollar certainly suffered a beating due to the fall in oil prices, Canadian economic weakness and more.
And that’s probably not the end of it. The team at Morgan Stanley explains:
Here is their view, courtesy of eFXnews:
The BoC (meeting next Wednesday) may be the next central bank to sound dovish after the RBA this morning, says Morgan Stanley.
“With sharply falling commodity prices, Asia reporting asset volatility and weak economic data, it would take a hugely brave central bank to sound hawkish. The RBNZ illustrated what can happen when a bank stays too hawkish for too long,†MS adds.
“The BoC should avoid this risk, we believe, suggesting an asymmetric market situation for the CAD. The chances of seeing the currency declining sharply, propelled by falling commodity prices and the BoC providing dovish signals are higher compared to the possibility of the CAD getting a boost by an overly confident central bank,†MS argues.
“Markets will likely position for the asymmetry and sell the CAD ahead of next week’s BoC meeting, we believe,†MS projects.
In line with this view, MS maintains a long USD/CAD position in its strategic portfolio. The trade opened at last Thursday NY close (7/2) from around 1.2540, with a stop at 1.24, and a target at 1.30.
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