ridethepig | CADNOK 2020 Macro Map A good time to map the strategy and flows for CADNOK as we approach year-end. As you will have noticed I am tracking for a major pullback in the cross over the first half in 2020, this is coming from large macro forces at play. Central bank coordination has opened up the opportunity for NOK to outperform CAD.
Firstly the reflation theme via USD devaluation is going to help Canada a lot less than the rest as Canada will receive a spillover from the US manufacturing recession.
Secondly we need to discuss the impact of Oil across both economies. CAD and NOK are affected by oil with divergencies in their breakevens. For example Canada breakevens are circa $45 compared with Norway at $23 per barrel. Meaning simply Norway has more breathing room for the fall in Oil:
The third and final leg to the stool is coming from yield differentials. After the more dovish than expected shift in stance from BoC, the window is open for a cut which has not been fully priced while Norges which was previously the last hawk standing has hit the pause button. I personally see room for another hike from Norges next year which is the leg I am looking to trade here.
Best of luck all those in CADNOK, a very good pair to add to your FX portfolio.
