Citi Sees Reversal in USD/CAD, Targets Loonie Strength
Citi has initiated a short position in the U.S. dollar against the Canadian dollar, expecting interest-rate differentials to reverse in favor of the loonie.
The bank targets a price of 1.35 USD/CAD and has set a stop-loss at 1.3990. Citi believes that upcoming economic data will challenge expectations for U.S. monetary policy, with inflation data due on September 11 being a key catalyst.
Citi's economists predict annual inflation to ease to 2.3-2.4%, which would reinforce expectations for a neutral-to-dovish stance among Fed policymakers. The Canadian dollar also has support from the Bank of Canada's more hawkish-than-expected stance, with Governor Tiff Macklem stating that upside risks to inflation have increased.
The bank sees the market's pricing of the Fed-BoC rate differential as being at the upper end of its range for the year, making it attractive to fade the recent move and position for a stronger Canadian dollar. Citi also flags Canada's first Investment Summit, scheduled for September 14-15, as a potential positive catalyst for the currency.