MS issued the short CAD / JPY recommendation during the UK morning, so bear that in mind

to sell CADJPY at market with

  • a target of 78.00
  • and stop of 85.15

Morgan Stanley cite:

CAD looks poised to weaken further

  • positive trade news has largely become priced in, suggesting limited upside and more significant downside, especially given the break-up of Canadian-US trade negotiations which is a risk-negative factor.
  • Governor Poloz at Jackson Hole suggested that he was looking through the uptick in headline CPI, and 2Q GDP showed that economic data are continuing to soften, limiting the hawkish risks from the BoC.
  • Markets have begun to price in the risks associated with highly indebted economies exposed to rising global funding costs like Australia and New Zealand, but so far CAD has remained relatively immune, suggesting further room to fall.

while JPY appreciation should continue

  • JPY looks poised to strengthen as continued risks in EM should begin to spill over into broader markets,
  • Fed policy normalisation continues and market volatility increases.

Risks to the trade

  • include a more hawkish surprise from the BoC supporting CAD and continued low volatility and outperformance of US assets, keeping JPY from appreciating

MS also issued a second recommendation, We like to buy USDMXN at market with a target of 20.30 and stop of 18.40