BoC rate cut helped boost USD/CAD and GBP/CAD

Market expectations for the Canadian outlook and BoC policy were reset last week, with the Bank having established what looks like a low bar for activity data in the coming weeks/months. They now look for -0.5%q/q ann. in Q2, and +1.5% in Q3. 

Their rhetoric shifted from looking for rebound beginning in Q2, to now calling for the pickup in activity in Q3. What that does is take some of the weight out of Q2 data, which could mute the market impact of Canadian activity releases until we begin to see early signs on Q3.

According to RBC capital markets,

• It is hard to find any significant new catalysts for CAD to sell off in the short term, or for USD/CAD to breach the 1.3065 highs from 2009. This week will be much thinner on news out of Canada, and the only noteworthy development to watch is the May retail sales report on Thursday. A small rebound rebound is expected from April 
  
  
• The BoC rate cut helped boost USD/CAD to the 1.30 target in the Fundamental Portfolio, and GBP/CAD to the 2.01 target of the trade of the week. Both pairs should see higher levels in Q3/Q4, but trading-wise, waiting is prefered for at least a modest pullback before reentering a position.
  
  
• Overall, when the larger themes driving CAD are considered, it is likely to be considered being short against USD and GBP in particular over the longer run. In the short run however, a lot more bearishness on CAD has already been priced-in, and waiting is preferred for a pullback before reentering a position.