Forex Weekly Analysis

Investors should sell the dollar against its Canadian counterpart on prospects the Bank of Canada will increase interest rates sooner than the Federal Reserve, RBC Capital Markets said.

Investors should sell the dollar against its Canadian counterpart on prospects the Bank of Canada will increase interest rates sooner than the Federal Reserve, RBC Capital Markets said. “It will become increasingly clear that the Bank of Canada will raise interest rates well ahead of the Fed and once it embarks on the normalization path, rate hikes will likely be more aggressive than the Fed,” Sue Trinh, a senior currency strategist in Sydney, wrote today in a report. “The market is not yet priced for such a scenario and we recommend entering a strategic short dollar-Canadian dollar position to take advantage of this mispricing.”

The pound must climb above $1.62 for a new strengthening trend to emerge, UniCredit SpA said. “Sterling bulls cannot cry victory yet, as a return above $1.62 at least is needed to restart a bull trend,” analysts including Roberto Mialich, a senior global currency strategist at UniCredit Markets & Investment Banking in Milan, wrote today in a report. “Likewise, a break below 90.85” pence per euro is needed, “to regard the recent euro-pound strength as almost ended,” the analysts said.

Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades. “Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

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