USD/CAD: Canadian Seagulls calling - Rabobank

Christian Lawrence, Senior Market Strategist at Rabobank, notes that the USD/CAD has traded higher over the past four sessions, moving up off the 1.30 floor and the move higher is in line with their expectation but they need to see a confirmed close north of 1.32 before they can say the recent range has broken.

Key Quotes

“We maintain the view that CAD looks rich and sizeable event risk ahead could see USD/CAD test the 1.36 handle.”

 “We have often cited our view that CAD is pricing in almost nothing from a Trump-factor perspective. If we do see risk emerge from this front then there is likely to be a short term reaction but depending on the announcement it would also have a meaningful long term impact on Canada. Although not our base case, if we were to see a border-adjustment tax implemented south of the border this is one example of a policy that would have a long term impact on USD/CAD.”

“We have noted Trump policies as a risk for CAD both short term and longer term and we think USD/CAD seagulls look attractive for USD buyers.”

“As an example, looking at a 12mth horizon, a USD buyer can create a zero cost structure by purchasing a call at 1.36, selling a call at 1.44 and selling a put at 1.24 (61 pips below the May 2016 low which was the lowest print since July 2015). Spot reference 1.3190.”