Nomura on the factors they believe will exert downward pressure on the Canadian Dollar (CAD). And discusses their long position on USD/CAD.
Factors Exerting Downward Pressure on CAD
1. Softer Terms of Trade in Canada: Nomura believes that Canada's terms of trade, which is the ratio of export prices to import prices, is softening. This could mean that the prices for Canadian exports are falling relative to the prices of its imports, which can negatively impact the Canadian economy and, consequently, the CAD.
2. Short Covering by Real Money Investors: Nomura suggests that real money investors have mostly completed short covering. Short covering refers to the buying back of assets that were initially sold short (betting that their prices would decrease). With short covering mostly done, there may be less buying pressure to support the CAD.
3. US Economic Resilience Adversely Impacting High-Beta G10 Currencies: The resilience of the US economy, according to Nomura, can have an adverse impact on high-beta G10 currencies, including the CAD. High-beta currencies are typically more volatile and sensitive to changes in market conditions. As the US economy remains resilient, it may attract investment away from riskier high-beta currencies like the CAD.
Long USD/CAD Strategy
Considering the factors mentioned above, Nomura maintains a long position on USD/CAD, targeting 1.37.
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USD/CAD daily candles.
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