Goldman Sachs: Canadian dollar not the optimal choice to bet against weakening USD

<p>Goldman Sachs weighs in on the Canadian dollar
(CAD) in the context of its recent monetary policy changes and the
broader environment of USD weakening.</p><p>Key Points</p><ol><li><p>BoC Rate Hike: The Bank of Canada (BoC) has implemented another 25bp rate hike, which was in line with market expectations.</p></li><li><p>Potential for Further Hikes: There's an increased
likelihood of another rate hike later in the year, possibly as soon as
September. This speculation arises from the BoC's resolute commitment to
revert inflation back to the 2% target. The threshold for a pause in
rate hikes appears higher now, signaling potential continuity in this
tightening trajectory.</p></li><li><p>Currency Implications: However, another rate hike
might not have the same positive effect on the currency in the short
term as before. With the Dollar experiencing a weakening phase due to
moderating inflation concerns, CAD might face challenges in other
currency pairs.</p></li><li><p>CAD vs. USD Dynamics: While a declining Dollar
should typically push USD/CAD lower, the Canadian dollar is not
Goldman's first choice for capitalizing on USD's weakness. This is
primarily due to CAD's high sensitivity (or beta) to USD movements.</p></li></ol><p>Summary</p><p>Goldman Sachs acknowledges the recent monetary policy actions by the
Bank of Canada and its implications for the Canadian dollar. Even though
there's potential for more rate hikes, given the current backdrop of a
weakening Dollar, Goldman doesn't view CAD as the optimal choice for
betting against USD in the near term.</p><p>At the moment the market is pricing in just a 20% chance of a hike at the next BOC meeting in September but for the October meeting, the pricing is roughly 50/50.</p>

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