Analysts at Nomura remain outrightly bullish on the Canadian dollar in the first half of next year, recommending going short on AUD/CAD.

Key quotes

“We view CAD as an attractive currency among the G10 commodity-tied dollar bloc in H1 2022 for the following reasons: 1) we expect the Bank of Canada to lift off in mid-2022 or potentially earlier in view of high domestic inflation, and likely maintain its hawkish stance, 2) oil prices are likely to remain elevated in the first half of 2022 as the countries in OPEC+ are still cautious over increasing oil supply and will likely act accordingly to prevent the plunge in price, and 3) the Canadian economy is less vulnerable to China’s growth slowdown than the Antipodean economies.”

“Therefore, we recommend short AUD/CAD (entry: 0.9100, target: 0.8850) regarding the monetary policy divergence and tailwinds from the terms of trade.”

“However, we will not keep on holding this position in H2 2022, but rather reduce our conviction on long CAD. Even though the BoC rate hike is likely to occur earlier than major central banks around the globe, the market’s expectation on this rate hike is likely to be much priced in by then.”