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Forex Flash: USD strengthens against metrics – ANZ

According to the ANZ Research Team, “Our broader view has been to anticipate, as the global economy repaired itself, that the US dollar would stay soft against a range of currencies, particularly those in Asia and the EUR; and for the AUD and NZD to remain at high levels despite stretched valuation metrics.” Against this view, the dollar has strengthened particularly strongly since early February, and against some currencies since early January. Following this, a consensus seems to have emerged that the dollar's strength has been driven by US recovery expectations, and that this strength is likely to persist.

This is not the first time in recent years that a relative growth argument for dollar strength has been consensus. For us the key question is whether the dollar has rallied because recovery expectations are gathering momentum and the US is leading those, or have recovery expectations in fact, suffered a setback, contrary to our cyclical expectations. In other words, is there something wrong with our framework, or has our macro call just suffered a bit of a setback?

Forex Flash: CAD still holds many benefits – UBS

Despite the perception that massive selling has taken place in the wake of the 'AAA unwind', on a structural level the market is still heavily long CAD. There was a major round of accumulation in mid-2012 (riding the coattails of the SNB), which is currently in the process of being reduced. According to Research Analyst Gareth Berry at UBS, “Positioning shifts have been quite consistent with changes in the CAD's NEER and momentum is clearly towards the downside.”
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Forex Flash: Growth shocks in US unlikely to trigger downside for CAD – UBS

Canada's key export sectors - manufacturing and energy - are not enjoying the best of demand conditions, and given the heavy exposure to the US, any growth shocks arising from sequestration in the US would be strongly felt by the Canadian labor market. Canada's current account - although at manageable levels - is struggling to recover and this serves as an immediate deterrent to longer-term investors.
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