Citi Bets Against USD/CAD on Weakening US Rate Hike Expectations

Citi has initiated a short position in USD/CAD, predicting that the Canadian dollar will strengthen against its US counterpart. The bank's analysts expect upcoming economic data to challenge expectations for a September Federal Reserve rate hike, which would boost the loonie.

They point to the US inflation data due on September 11 as a key catalyst, forecasting annual inflation to ease to 2.3-2.4%. This continued disinflation would reinforce expectations for a neutral-to-dovish stance among Fed policymakers.

The Bank of Canada's more hawkish-than-expected stance is also providing support for the Canadian dollar. Governor Tiff Macklem has said that upside risks to inflation have increased, and the central bank is prepared to deliver consecutive rate hikes if needed.