Short-term interest rate markets see the bank of Canada making four 25bps interest rate cuts next year. With expectations that the bank of Canada will leave current interest rates unchanged at 5% this week. Could there be some significant selling in the Canadian dollar?
The US dollar Canadian dollar currency pair has a strong period of strength ahead, now the potential for some USDCAD gains on a very dovish bank of Canada is a real possibility. Over the last 15 years the USDCAD pair has gained 73% of the time for an average return of 0.70%
Will we see USDCAD gains this year?
The major trade risk here is if the Bank of Canada stress the need for further interest rate hikes. That could send the USDCAD lower rather than higher. Also, Fed policy is a risk due to the USD component of the trade.
Remember don’t just trade it, Seasonax it!