CAD: The Loonie Takes Flight;What's the Trade? - SocGen

Societe Generale FX Strategy Research notes that the hawkish commentary from Bank of Canada officials this month has taken the FX market by storm. "The signal from the BoC is very clear, and a rate hike is imminent, if not in the July meeting, then in September. A full economic update will be released with the BoC's monetary policy report after the 12 July meeting," SocGen argues.

"We had maintained that the Canadian dollar is undervalued, and we had previously expected USD/CAD to trade to 1.30 by early 2018. That target level has now been reached, and the medium-term outlook for the CAD has turned more much bullish given the BoC's hawkish shift. The loonie's undervaluation should support further appreciation. Our technical strategist has pointed to USD/CAD 1.25 as the target once support at 1.30 is broken, as is likely in coming weeks," SocGen adds.
What's the trade?

"Perhaps more interesting from a relative viewpoint is to go short NZD/CAD following its failure to break through 0.98 earlier this month. A decline to NZD/CAD 0.92 by year-end seems to be in the cards now. A rally in crude oil prices towards year-end would be an added benefit to the loonie, " SocGen advises.

Source of the graph: Bloomberg Pro Terminal

Trader - S. Fuchedzhiev

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