CHF/CAD headed to 1.2600 – Morgan Stanley

Analysts at Morgan Stanley are out with their take on the CHF/CAD cross, in light of the NAFTA negotiations and Swiss National Bank’s (SNB) future monetary policy path.

Key Quotes:

“BoC Business Outlook Survey suggested that investment trends remained strong and that inflationary pressures continued to build.

"Canadian growth and inflation data tracking broadly in line with the BoC's outlook could form a case for a rate hike at the April meeting.

The market is only pricing in a 14% likelihood of a rate move in April, creating upside risks for CAD.

In addition, constructive news over NAFTA negotiations suggests the US may be approaching an acceptable agreement with its trading partners, which should lead to a re-pricing of the trade risk premium in CAD.

CHF should stay on the back foot given our expectation for a risk rebound, with SNB policymakers including Maechler and Moser suggesting the central bank will remain cautious for the time being.”

“Trade Strategy:

Short CHF, long CAD position, the target of 1.26, with a stop at 1.33.

The risk to the trade is a dovish shift from the BoC, leading to CAD weakness.”