Forex: USD/CAD en route to 1.14: Goldman Sachs

on Jan 20, 2014
Updated: Oct 21, 2019

**, Monday 20 January:**

After the strong gains of the greenback against the loonie at the beginning of the month, the USD/CAD has consolidated just below the psychological level of 1.10. So far today, the pair has vacillated within the range 1.093 to 1.07, lacking clear direction.
The impetus for a next move could well be this week’s monetary policy decision by the Bank of Canada, due for release on Wednesday at 15.00 UTC. Analysts are widely anticipating that the bank will hold the overnight rate steady at 1.0 percent, with the view pervasive that rate cuts would seem to be premature for now.

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Goldman Sachs believes on the basis of its analysis that, amongst the G10 central banks, “the Bank of Canada has the biggest reason to be worried over low inflation”. The investment bank’s analysts nevertheless see the BoC as “firmly on hold” because, as they write, “elevated and still rising house prices and a solid activity picture (we are tracking GDP at 2.5 percent q/q annualized) rule out actual policy easing”.

According to Goldman Sachs, the big picture is one of cyclical underperformance by the Canadian economy relative to that of the United States, and the ability of BoC governor Stephen Poloz “to ‘threaten’ a rate cut (to anchor front-end rates as US rates go higher) gives us strong conviction that $/CAD will move higher”. In that the result, Goldman Sachs is currently picking the USD/CAD to close 2014 at 1.14.

The CTFC’s latest Commitment of Traders report, covering data to 14 January and released on Friday, reveals that investors have increased their bearish positions against the loonie, driving the net short position to $6.2 billion. The market is thus closing in on the record $7.4 billion short position from April 2013 as sentiment deteriorates for the Canadian dollar.
Right now, the USD/CAD is trading at around 1.0954, down 0.1 percent intraday.


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