Image © Adobe Images
Analysts at Morgan Stanley are sellers of the Canadian Dollar.
In a regular briefing note to clients, Morgan Stanley's FX strategy team says it's a seller of CAD against the CHF on the basis that trade uncertainty will remain an ongoing challenge for markets.
"We expect CAD to weaken from a challenging global risk environment and downside risks to U.S. growth. A U.S. slowdown would have more negative spillovers to Canada than any other G10 economy, given the tight trade interlinkages between the two countries," says Morgan Stanley.
The U.S. economy continues to print robust data, despite elevated uncertainty over trade, but economists think a steady deterioration in the economic pulse will soon become visible.
The Canadian economy is tightly integrated with the U.S., even if trade relations between the two have deteriorated under the new Trump presidency, meaning a slowdown south of the border has real implications for the Canadian economy.
The prospect of further weakness in Canadian output will keep the Bank of Canada alert to the need to cut interest rates further, which can further erode the Canadian Dollar's interest rate support.
"The Bank of Canada's summary of deliberations highlighted that some members of the Governing Council favoured a cut at the April meeting instead of keeping rates unchanged," says Morgan Stanley of the April 16 interest rate decision.
The Bank's most recent meeting revealed policy setters are attuned to weaker business and consumer confidence data, which deteriorated significantly amid the increased trade uncertainties.
"We continue to recommend short CAD positions versus CHF," says Morgan Stanley.
The Swiss Franc has been one of the standout performers during periods of trade-related uncertainty, which is testament to its enduring appeal as a safe-haven asset.
Belief in further CHF outperformance would underpin a bet that global uncertainty will remain a feature of the coming weeks.