CAD: On the back foot, for now – Nomura

Analysts at Nomura explain that CAD sentiment was turned decidedly negative recently as concerns about the outlook for the US/Canada trade relationship, a pull-back in oil prices, nervousness about the Canadian housing market, and a run of weaker economic data have combined in a short space of time.

Key Quotes

“This negative sentiment looks set to linger, with participants clearly rattled, and this should keep CAD on the back-foot for a while longer. But over time, we expect the CAD to rebound. Recent comments from OPEC officials point to production cuts being extended at least until end-2017. And with the global growth outlook still positive, we think demand/supply dynamics favor a lift in oil prices. Moreover, while there is a risk that recent housing market concerns intensify, we prefer to hold a more sanguine assessment and do not foresee contagion across the sector.”

“The current issues plaguing an “alternative lender” appear to relate to liquidity rather than solvency and policy measures have been announced to help deal with imbalances and frothiness in selected markets. As the dust settles, the CAD’s underlying fundamental drivers such as oil prices and the outlook for BoC policy, where we continue to see the start of the tightening cycle in H1 2018, should re-assert themselves.”