Goldman Sachs: What we expect from January BOC and USD/CAD strategy

Goldman Sachs anticipates a 25bps rate cut from the Bank of Canada at this week’s January meeting, paired with cautious guidance due to tariff-related uncertainties. They prefer medium-term long USD/CAD positions to capitalize on potential tariff risks.

Key Points:

1. Expected Rate Cut:

   • A 25bps cut aligns with market expectations, continuing the BoC’s easing cycle.

2. Messaging Crucial for CAD:

   • Focus will shift to how the BoC signals the pace of future rate cuts.
   • Risks include near-term CAD strength if the BoC hesitates to commit to continued cuts.

3. Tariff Uncertainty Weighs on Outlook:

   • Tariff threats from the US create an overhang, influencing the BoC’s cautious tone.

4. Medium-Term USD/CAD View:

   • Goldman remains comfortable with below-consensus estimates for Canada’s neutral rate.
   • Long USD/CAD is a preferred medium-term strategy, reflecting potential headwinds from tariffs.

Conclusion:

Goldman Sachs sees potential for near-term CAD support if the BoC sounds hesitant about further cuts. However, their medium-term view remains firmly tilted toward USD/CAD upside, driven by tariff risks and a relatively dovish BoC outlook. Long USD/CAD remains a favored trade.

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This article was written by Adam Button at www.forexlive.com.