Barclays Capital Research expects an additional BoC hike in Q1 2018 to undo the past “insurance cuts”, but acknowledging that the probability that the BoC moves earlier (in Q4 17) has increased given its upbeat assessment.
On the CAD front, Barclays sees limited downside risk to USD/CAD and continues to expect CAD weakness over the coming months as a subdued inflationary outlook does not imply a more aggressive rate hiking cycle relative to current market pricing.
In line with this view, Barclays is looking for USD/CAD to recover toward 1.33 by year-end and remains long USD/CAD through a 3m 1×2 call spread structure.
Source: Barclays Research
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