"In Canada, recent strength in building permits should translate into an acceleration in the annual pace of housing starts to 191K. The Bank of Canada business outlook survey released on Monday pointed to an improvement in the outlook for sales, investment and hiring with majority of firms reporting benefits from a stronger US growth outlook although some respondents also highlighted uncertainty about rising protectionism.

Markets have been ignoring risks of US protectionism for the CAD but a potential shift from selective tariffs to a broad border tax could be significant for US-Canada trade and the CAD.

Our fair-value estimates suggest the CAD is expensive. Neither relative rates nor oil prices will provide much support going forward.

We expect the BoC to hold steady next week and with crude oil prices down nearly 4% this week, we believe the dip in USD/CAD will prove unsustainable.

We have added a long USD/CAD exposure to our model portfolio via a 2M 1.37 one-touch option".

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