[Dan]

Risk reward profiles suggest that AUD and NOK might be open to underperformance relative to CAD as the monetary policy easing cycle turns. Markets are perfectly priced for the rate hike campaigns by the RBA and Norges Banks, and for the BoC to stay on hold for several months. Risks seem tilted toward the market being too perfectly priced for AUD and NOK rate hike campaigns and potentially too sanguine on the BoC.

Don’t chase AUD/CAD higher or CAD/NOK lower at present. Short-term interest rate spreads already reflect a sharp divergence in monetary policy stances in the
next several months.

Rather, be prepared to take tactical long CAD positions versus AUD and NOK as the monetary policy tide turns, with a key caveat that, at present, the BoC remains very wary of “persistent” CAD strength.