Tariff risk premia evaporates. Two talking points dominate client discussions — tariffs and positioning, TDS’ FX analysts Jayati Bharadwaj and Mark McCormick note.
Markets can remain long USD for an extended time
“Markets have been a bit too quick and optimistic in pricing out tariff premia in USD/CAD which seems premature. Tariffs are a means to an end, even if not the end itself. With Canada, the goal is to restructure USMCA where discussions have not even begun yet. Tariffs, even if bargaining chips, might need to be implemented for some period of time to bring Canada to the negotiating table.”
“Our in-house positioning model shows that the USD has gone from an extreme long to more neutral based on a 6m scale. Now seems to be a good time to buy the USD on dips, especially vs currencies where Trump risks are under-priced like CAD, EUR. Positioning, in itself, is no longer a strong argument to be a USD bear. In fact, we find that markets can remain long USD for an extended time (like during the trade war of 2018-2019).”
“We recently went long USD/CAD call spreads with 3m expiry. Our quant macro framework MRSI now assigns a large negative trading weight to CAD, driven by rates, growth, carry and equity (factors where the USD scores strongly). Poor fundamentals, a relatively weak macro story, rising trade uncertainty, and domestic political uncertainty restricting Canada’s fiscal response to potential tariffs should ultimately push USD/CAD higher again.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
