Danske Bank FX Strategy Research argues while the BoC’s July hike marked a substantial turnaround in its communication, the subsequent CAD strength post the meeting looks stretched.
“In our view, market pricing of the BoC has become too aggressive, with markets pricing in another two full 25bp hikes for the coming year. On balance, we therefore see relative rates as CAD negative, even though Canadian monetary policy is highly linked to the Fed,” Danske adds.
In line with this view, Danske targets a recovery in USD/CAD towards 1.28 in 1-month and 1.30 in 3-months.
Source: Danske Bank Research
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