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Last Friday we initiated a CAD long (vs CHF) on a multitude of tactical rationale. These included a potentially renewed impetus to the tightening cycle following the labor market report (which snapped a 2-month run in data disappointments that had caused a 20bp decline in short-end rates) and a meaningful discount versus short-term fair value models (currently having now narrowed to 0.7% on USDCAD or 0.5-sigma).
In addition, the breakout in oil prices most recently not only translates to CAD upside via the translation into upside to short-term fair value (worth 1.3% on USDCAD for the 16% move in WTI in the past month), but raises the risk that oil prices sustain a move into an area where the positive impact broadens out more substantially into greater energy CAPEX and hence a much stronger cyclical and rate outlook behind CAD. We maintain exposure to this trade.
We encourage CADCHF longs at spot levels 0.7741, stop at 0.7650. Marked at +0.14%. Courtesy: JPM
