Trade for the week ahead: Long USDCAD through options We continue to envision a tactical USD retracement as the prospects of a December Fed hike get better priced by markets.
- Moreover, the prospect of a tax proposal on Monday could support the USD amid subdued market expectations.
On the contrary, we see downside risks for the CAD into Governor Poloz’s Wednesday speech. Mr. Poloz will likely side with Deputy Governor Lane in noting that the BoC is assessing CAD strength in the context of subdued inflationary pressures.
- We expect markets to re-price the prospects of an October rate hike by the BoC and the CAD to weaken.
- Moreover, we expect flat Canada monthly GDP, showing moderation after very strong previous prints.
We recommend buying a 1w (29 Sep 17) ATMF (spot ref: 1.2303, strike: 1.2302) USDCAD call option for a cost of 48bp. targeting 1.2540 (above the 50d moving average of 1.2480). for a reward-to-risk ratio of c.3:1.
This trade recommendation is valid from the Wellington open Monday morning to the New York close Friday.