6 Jan 2015
Add to long USDCAD exposure - Nomura
FXStreet (Bali) - Nomura FX Strategists have issued a trade recommendation note to clients, advocating for a reset of long positions in USDCAD, with oil price declines and asset allocation trends to see the bull trend resume.
Key Quotes
"Following the 17 December FOMC meeting, we recommended long USD/CAD positions, based mainly on the idea that much lower oil prices were not fully reflected in CAD pricing. At the time, USDCAD was trading around 1.16 and oil prices (WTI) were around $57/bbl. In the first trading sessions of 2015, USDCAD moved sharply higher from 1.16 to 1.1780, and the question is whether the momentum can be sustained."
"We think there is potential for accelerated upside momentum in January, for the following reasons: First, oil prices continue to drop. Second, the shift in Canada‟s terms of trade is likely to have implications for monetary policy. As such, the Bank of Canada is likely to downgrade GDP projections at the January meeting, in our view. Third, our fair value models which incorporate terms-of-trade effects, now point to an equilibrium above 1.20. Fourth, global reserve accumulation (which has turned to reduction for some countries) trends could be a new negative force for the CAD. Fifth, flows into CAD assets, especially those denominated in CAD, have been weak so far this year, especially when compared to the inflows seen in 2010 to mid-2013. Sixth, many investors were disappointed in H2 2014 by the degree to which the CAD lagged in the global USD rally."
Key Quotes
"Following the 17 December FOMC meeting, we recommended long USD/CAD positions, based mainly on the idea that much lower oil prices were not fully reflected in CAD pricing. At the time, USDCAD was trading around 1.16 and oil prices (WTI) were around $57/bbl. In the first trading sessions of 2015, USDCAD moved sharply higher from 1.16 to 1.1780, and the question is whether the momentum can be sustained."
"We think there is potential for accelerated upside momentum in January, for the following reasons: First, oil prices continue to drop. Second, the shift in Canada‟s terms of trade is likely to have implications for monetary policy. As such, the Bank of Canada is likely to downgrade GDP projections at the January meeting, in our view. Third, our fair value models which incorporate terms-of-trade effects, now point to an equilibrium above 1.20. Fourth, global reserve accumulation (which has turned to reduction for some countries) trends could be a new negative force for the CAD. Fifth, flows into CAD assets, especially those denominated in CAD, have been weak so far this year, especially when compared to the inflows seen in 2010 to mid-2013. Sixth, many investors were disappointed in H2 2014 by the degree to which the CAD lagged in the global USD rally."