FxWirePro: Trade USD/CAD Calendar Spread as Loonie Looks Defensive

CAD trading defensively as post-Fed spread narrowing begins to fade. We maintain our medium-term bearish CAD view, expressed as a one-touch calendar call spread. 

In particular, we have reservations about the smoothness of the USMCA ratification process, which is starting to show some signs of life in DC and is largely tracking our timeline and base case for now. Shorter-term drivers were in focus this week for CAD, though. 

In particular, Canadian Q4 GDP disappointed across the board versus expectations (0.4% vs 1.0%), whereas US GDP outperformed (2.6% vs 2.2%), and is the lowest quarterly growth rate since 2016. 

Given the importance of the m/m figure (-0.1%) in BoC policy-making, this is likely to reinforce the wait-and-see pause for some time, even with the acknowledgment that the policy rate remains 75bps below the neutral range. 

Meanwhile, CAD may yet come under pressure as political risk mounts surround PM Trudeau in the SNC scandal. In addition to serious allegations against the PM and calls for him to resign, Canada is set to hold federal elections later this year. 

We have positions open in -3m/+7m OT USDCAD calendar call spread (k=1.40). Paid 16.6% in mid-January. Marked over 20% so far. Courtesy: JPM 

Currency Strength Index: FxWirePro's hourly CAD is at 60 (bullish), the hourly USD spot index is inching towards 60 levels (bullish) while articulating at 12:30 GMT. 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex