Long USD/CAD in 2017 – RBC CM

Analysts at RBC Capital Markets note that since the US election, CAD is mispriced for 2017 and expects the USD/CAD to trend higher in 2017.

Key Quotes

“We were already bearish CAD ahead of the US election: the falling sensitivity of Canadian exports to cheaper CAD meant that the BoC’s rotation story was taking longer than expected to play out. The US election reinforced that view. Only a small part of that is a conventional monetary policy story. We also have the threat of rising protectionism and the USD-positive impact of tax reform discussed below.”

“The OPEC deal has put a floor in oil and Trudeau’s pipeline approvals should narrow the WTI-WCS differential over time, but Canada is less likely to benefit from US fiscal stimulus than it has in the past, and we think markets are underpriced for rising US protectionism. With around half of Canadian exports coming from foreign majority-owned firms, the negative impact could spill over into investment by exporters, too. Technically the outlook is also bullish USD/CAD, with the multi-year uptrend still intact.”