WehaveastructurallybearishviewontheUSDandforecastsignificantandbroadweaknessintheUSDthroughtoyear-end.Wecontinuetoholdothertradeideasinourmodelportfolioconsistentwiththisview.However,wethinktheUSDCADexchangerateislargelyoutsideofthiscomingadjustment.Thepairisalreadytradingclosetolong-termfairvalueaccordingtoourmodelsandlacksthestructuralcasefordepreciationwhichotherUSDpairsexhibit.Weviewthattacticalrisk-rewardforCADshortsvstheUSDareattractiveatpresentlevels.KEYMESSAGESWeviewriskrewardasattractivetopositionforCADweaknessinthenear-term.LongCADpositioningisatanextreme,theBoCislightlypricedandCanadiandatasurprisemetricscouldbedueareversal.TRADEIDEA|TRADEIDEAS10/07/20191TRADEIDEA|GLOBAL10July2019Pleaserefertoimportantinformationattheendofthisreport1.BNPParibasFXPositioningAnalysissuggestsCADlongshaveextendedtoascoreof+37(-/+50scale),whichrepresentsthelargestlongsince11January2011(Fig.1).ThecomponentbreakdownrevealsthatallinvestortypesholdCADlongs,althoughtheproxyforfastmoneyinvestorsisthemostextreme(Fig.6).WethinkCADlongscouldbevulnerabletoasharpunwindintheeventofanynegativedata-flowfortheCAD.2.Fed/BoCrateexpectationshavediverged(Fig.2)withtheFedpricedfor82bpofeasingoverthenextyearandtheBoCpricedfor12bp.Canadiandatahasbeenholdingupverywellanddatasurprisemetrics(detailsinpoint3onpage2)areatverypositivelevels.However,evenslightlymoredovishmessagingfromtheBoCcouldhaveanoutsizedimpactonCAD,givenhowlightlypricedthecentralbankisforeasingriskandgivenhowtheFXmarketispositioned.OnefactorsuggestingthattheBoCcouldincrementallyturnlesshawkishisthatanFXheadwindisstartingtobuild,albeitnotyettoadegreethathasconcernedtheBoCinthepast(seeFig.4).PositioningforamoderatelyweakerCADBuy2m1.34USDCADEuropeanDigitalforacostof15.7%(spotref:1.312509:20BST).Notionalallocationintradeideaportfoliois1.91USDm.Fig.2:Fed/BoCpolicyexpectationshavedivergedSources:Macrobond,BNPParibasG10FXFig.1:CADlongsatextremelevelsSources:Macrobond,BNPParibasDanielKatzive,HeadofFXStrategy,NorthAmerica|BNPParibasSecurit...
