Canada – northern exposure – often leads to frostbite

The Canadian dollar appears cheap. But appearances can be deceptive. Canada’s economic outlook is more fragile than that of the US; this will keep monetary policy skewed to the dovish side. Any sustained recovery also hinges on rising oil prices. We don’t think they will. Although there has been a bounce in non-oil exports, this has been driven by FX gains rather than a productivity revival. Appreciation would sweep that rug away. We’d look to short the loonie versus the US dollar below 1.30.

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