Synopsis:

ING flags the Canadian dollar as one of its least preferred G10 currencies, despite its strong recent performance. While firmer domestic data supported a BoC hold in June, structural growth concerns, trade headwinds, and underpriced rate cut risks weigh on the CAD outlook, particularly in non-USD crosses.

Key Points:

Short-Term Support from Data:

• CAD has been among the G10’s top performers recently, driven by upside surprises in growth and inflation data.

• This supported the Bank of Canada's decision to hold rates on June 4.

Limited Appeal Beyond USD/CAD:

• While USD/CAD may drift lower amid softer USD demand, CAD looks weak relative to other G10 currencies.

• ING sees poor risk/reward for CAD in cross-currency trades.

Trade and Growth Headwinds:

• New US metal tariffs disproportionately impact Canadian exporters.

• No signs of renewed high-level trade talks add to the pressure.

• Domestic growth outlook remains fragile, with risks skewed to the downside.

BoC Easing Underpriced:

• ING expects the BoC could cut rates as early as July, ahead of market expectations.

• Markets are only pricing in 8bp for July and 15bp for September, leaving room for a dovish repricing of the CAD curve.

Conclusion:

ING maintains a bearish stance on CAD, viewing its recent strength as short-lived. Structural growth risks, trade vulnerability, and underpriced BoC rate cut expectations make the loonie one of ING’s least attractive G10 currencies, especially outside the USD/CAD pair.