Investors should bet the dollar will fall against its Canadian counterpart on expectations the Federal Reserve will introduce more stimulus, according to BNP Paribas SA.
Enter the trade of the U.S. dollar against the Canadian currency at C$1.0240 with a target of 98 cents, Steven Saywell, head of currency strategy for Europe at BNP Paribas in London, wrote in a note to clients today. The trade should be abandoned if the greenback rises to C$1.0446, he said.
BNP expects the Fed to undertake this quarter a third round of asset purchases, known as quantitative easing. Yesterday, minutes from the central bank’s June meeting signaled some policy makers would support implementing more stimulus if the economy slows further.
Fed action “should boost risky assets, lower the risk premium and weaken the the U.S. dollar,” Saywell wrote. “The Canadian dollar should be one of the principal beneficiaries.”
Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, rose 0.1 percent to C$1.0184 at 3:21 p.m. in New York. It last traded at 98 cents in April. The loonie is the second-best performer this year against nine-developed nation counterparts, after New Zealand’s dollar, according to the Bloomberg Correlation-Weighted Indexes.
Increases in U.S. stocks and the price of Brent crude oil would also lead Canada’s dollar to strengthen, Saywell wrote. Brent oil for August settlement rose 0.9 percent to $101.14 a barrel after the U.S. announced more sanctions against Iran. The Standard & Poor’s 500 Index fell 0.3 percent to $1,337.96.