The Canadian dollar has been out in the cold lately, failing to rise when oil prices strengthened but slipping when oil started to slide.
This strategist says the loonie is worth another look.
In fact, Sue Trinh, a senior currency strategist at RBC Capital Markets, sees three reasons why the Canadian dollar could be primed for a move higher.
Reason one is expectations. Friday's strong Canadian employment report led investors to lower their expectations of interest rate cuts, "there are still too many rate cuts priced in," in Trinh's view.
The next reason has an acronym: CERI. This weighted average of exchange rates for the Canadian dollar against the currencies of Canada's major trading partners has fallen 3.6 percent since mid-January, Trinh says. But at the same time, the gap between what Canada pays for oil and receives for oil exports has narrowed in Canada's favor. That suggests the loonie is a relative bargain.
Then there is investor positioning. It is, Trinh says, "less of a hindrance—CAD longs have been cleaned out over the last two months. Net positioning is now short and at levels last seen in March 2007."
The thaw may not last long term. But for now, Trinh says, there is good reason to think the loonie is ready to lift off.
