“We remain bearish on CAD ahead of this week’s BoC meeting where we expect a dovish outcome. In its previous meeting, the BoC stated that inflation risks have tilted somewhat to the downside and growth may be somewhat lower than anticipated in July, softening the hawkish tone that it had been adopting so far despite weak economic data. Deputy Gov. Wilkins reiterated these themes in her speech last week. This increases the possibility of the BoC cutting rates over the next few months, particularly in light of weakening inflation data. 3Q growth expectations have improved somewhat in recent weeks due to better July GDP and a narrower trade deficit but we are still skeptical the BoC’s forecasts will be reached. Given the markets are pricing only a few bps of rate cuts for this year, and CAD has the largest long positioning in G10, we think further data weakness could weaken CAD significantly. We like selling CAD against other commodity currencies”.
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