Bank of America Global Research likes long USD/CAD via options structure (Buy USD/CAD via 3m ERKO call (strike 1.2903, barrier 1.35)
"Canada has benefitted from terms of trade gains in 2022 while the BoC has been firmly raising rates. These factors should have led to CAD strength, but CAD has remained weak vs the USD due to elevated global risk premium. We expect the CAD to remain weak vs the USD in the short-term as recession risks have materially risen. The CAD could start to strengthen again over the medium term after the onset of a recessionary shock," BofA notes.
"Under these conditions, USDCAD would likely rise to 1.33 in the near-term. The risk to this view is a more severe than anticipated recession, leading USDCAD to overshoot above our forecast," BofA adds.
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