The Canadian dollar hit a four month low today and Goldman Sachs has been saying nasty things about the loonie all week.
Earlier today, they recommended buying USD/CAD at 1.0550 with a target of 1.14 and a stop on a close below 1.01. The main rational is that Canada is posting current account deficits and that foreign capital inflows are slowing.
“Over the past few quarters, capital inflows have slowed rapidly, pushing the broad balance of payments into deficit of about 1% of GDP currently. Slowing reserve diversification [into the Canadian dollar] has almost certainly contributed to this,” Goldman wrote.
They also see the Bank of Canada remaining on hold until 2016.
“All told, there are a number of reasons why the Canadian dollar has scope to weaken. Some of these have been a factor for some time but the notable weakening in the external balance, the gradual shift in the BOC communication and the prospect of Fed tapering and the associated risks all suggest that 2014 may be the year when the CAD weakens more materially after many years in narrow trading ranges,” Goldman said.
Overall, Goldman doesn’t like commodity currencies. Yesterday they recommended Long S&P 500/Short AUD as a theme for 2014.
