Goldman Sachs: Canadian dollar not the optimal choice to bet against weakening USD | Forexlive

Goldman Sachs weighs in on the Canadian dollar
(CAD) in the context of its recent monetary policy changes and the
broader environment of USD weakening.

Key Points

1. BoC Rate Hike: The Bank of Canada (BoC) has implemented another 25bp rate hike, which was in line with market expectations.

2. Potential for Further Hikes: There’s an increased
   likelihood of another rate hike later in the year, possibly as soon as
   September. This speculation arises from the BoC’s resolute commitment to
   revert inflation back to the 2% target. The threshold for a pause in
   rate hikes appears higher now, signaling potential continuity in this
   tightening trajectory.

3. Currency Implications: However, another rate hike
   might not have the same positive effect on the currency in the short
   term as before. With the Dollar experiencing a weakening phase due to
   moderating inflation concerns, CAD might face challenges in other
   currency pairs.

4. CAD vs. USD Dynamics: While a declining Dollar
   should typically push USD/CAD lower, the Canadian dollar is not
   Goldman’s first choice for capitalizing on USD’s weakness. This is
   primarily due to CAD’s high sensitivity (or beta) to USD movements.

Summary

Goldman Sachs acknowledges the recent monetary policy actions by the
Bank of Canada and its implications for the Canadian dollar. Even though
there’s potential for more rate hikes, given the current backdrop of a
weakening Dollar, Goldman doesn’t view CAD as the optimal choice for
betting against USD in the near term.

At the moment the market is pricing in just a 20% chance of a hike at the next BOC meeting in September but for the October meeting, the pricing is roughly 50/50.