Barclays Research adopts a structural bullish bias on CAD and targets USD/CAD at 1.21 by Q1'22.
"We remain constructive on the loonie on the back of brighter growth prospects, extended domestic and external fiscal support, and higher oil prices. The economy is proving to be more resilient than anticipated to the Covid-19 containment measures, and the narrative of a more robust vaccine roll-out in H2 2021 and faster US and global growth implies a supportive backdrop for the currency.
In fact, we think Canada will be one of the main beneficiaries from international spillovers from President Biden’s stimulus plan, which adds up to the extended fiscal support measures by the Canadian government (which amount to roughly 3-4% of GDP over three years)," Barclays notes.
"As such, we significantly revise down our estimated path for the USDCAD across the forecast horizon and now expect it to weaken towards 1.21 by the Q1 22. We continue to recommend buying 3m USDCAD 1x1.5 put spreads," Barclays adds.