CAD: Squeezed-Out; Risk-Reward Attractive For Shorts - BNPP

Canada’s new government announced details of their budget, confirming a projected 2016-17 deficit of C$29.4bn, in line with previous guidance and market expectations, notes BNP Paribas.

"The Finance Ministry estimated the additional spending would boost GDP by 0.5% in the first year and 1% in the second. With Canada continuing to face significant headwinds, this may not be sufficient to avoid the need for further rate cuts from the Bank of Canada.

The Bank has been neutral in its guidance so far this year in advance of clarification of fiscal plans, but with budget uncertainty now out of the way, there may be more scope for markets to begin pricing more risk of policy easing, particularly in light of the CAD’s 6% gains vs. the USD so far this year," BNPP argues. 

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"We remain bearish on commodity currencies and, with short positions now having been wound down according to our BNP Paribas Positioning Analysis, risk reward is attractive for considering shorts," BNPP advises.