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Why Goldman Sachs is bearish on the loonie

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Goldman Sachs foreign exchange analyst Kamakshya Trivedi is bearish on the loonie,
“Most G10 central banks have cut to limit downside risks to growth, but the BoC has taken it a step further. Governor Macklem recently reiterated the need to see growth actually pick up in Canada, highlighting the BoC’s more dovish reaction function compared to the Fed. This puts a larger burden on next week’s GDP report to confirm any improvement in backdrop. We think the bar to a 50bp cut in November is low, primarily because of the high hurdle for the activity data and the latest softness in the labor market, but also because of the potential for a faster Fed cutting cycle. And, even though CPI is less in focus, if it continues to surprise to the downside or undershoot the BoC’s target alongside sluggish activity, the committee could see a reason to speed up cuts. This outlook continues to support our call for USD/CAD longs, and we are raising the stop on our trade to 1.35 to protect recent gains and reiterate our target of 1.38″
The $1.38 target converts 72.5 US cents to $1.
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RBC Capital Markets head of global commodity strategy Helima Croft assesses the geopolitical situation in the Middle East as it applies to potential oil price paths,
“The White House has worked furiously to prevent a full -blown Israel/Hezbollah war … Led by Special Envoy Amos Hochstein, the White House has tried to broker a deal that would see Hezbollah halt rocket attacks and withdraw from the border to a position beyond the Litani River; however , to date the Lebanese militia has rejected such terms , vowing to continue its strikes and prevent roughly 70,000 internally displaced Israeli citizens from returning to the north until there is a lasting ceasefire in Gaza … The concern in Washington has been that Iran would feel compelled to come to the aid of Hezbollah, its most important regional partner … Though oil rebounded last week, we do not see the current price as accurately reflecting a wider Middle East war scenario. Many market participants have seemingly written off a threat to regional oil supplies. While we are not forecasting a closure of the Strait of Hormuz, we do think that direct Iranian involvement would raise the prospect of a repeat of the 2019 scenario when the IRGC and allies targeted tankers and critical energy infrastructure in the region”
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BMO economist Shelly Kaushik reminded clients that despite the better than expected retail sales data, Canadian households are still struggling,
“Canadian retail sales came in better than expected for July, with a 0.9% headline gain or a solid 1.0% increase in volume terms. The latter is the strongest pace since early 2023. Despite the better-than-expected report, it’s clear that Canadian consumers are still struggling. Smoothing out the monthly volatility (as in the attached chart), sales volumes have remained subdued after the pandemic swings. And, they lag far behind population growth. In other words: more people are in the country, but each person is buying less stuff. Third quarter population estimates, out on Wednesday, are expected to reflect another yearly growth print around 3 per cent year-over-year. The weak per capita spending trend is expected to continue until rate cuts start to make their way into household budgets, and as population growth slows to a more manageable pace”
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Diversion: “Why Women Get Migraines More Than Men” – Wired (soft paywall)
New Newsletter: “Market Factors: Oil bears are wrong”
Editor’s note: (Sept. 25, 2024): This article has been updated to correct the currency conversion in the first item.

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