TD Research likes to fade CAD rallies (buying USD/CAD dips) into this week's BoC December policy meeting, targeting a move above 1.30.
"The loonie has rallied a touch over 3.5% since the last BOC meeting. The primary driver remains the enormous USD setback, reflecting it's near 6% decline across the most closely watched G10 and EM currencies. We doubt the BoC will be too fussed about it, given it's about 5% undervalued on our composite of structural fair value models...For now, it's still our view that markets have vastly overpriced the reflation theme, though the premium continues to rise rather than mean revert," TD notes.
"We also note the collapse in mobility, which is likely to impact the economy in the coming months negatively. Our global growth and risk appetite implies a move back above 1.30. The indicated level sits around. It's also an excellent anchor to fade the rallies," TD adds.