CAD is vulnerable to an equity correction – Deutsche Bank

In view of the Sebastien Galy, Macro strategist at Deutsche Bank, while we can track spot flow, it is only possible to infer the equity flows into Canada from their hedging pressure on the cross currency basis.

Key Quotes

“Nonetheless, we do know that the post election period was one of risk taking and that over the past few quarters inflows into Canadian equities have been strong.”

“Going forward, the resilience of the Canadian dollar depends on continued equity flows supported by higher oil prices. Lower oil/equity prices would leave the Canadian dollar particularly vulnerable given heavy foreign ownership in Canadian equities and oil positioning. In particular, the S&P/TSX energy sector is quite sizable and the overall index is expensive on a P/E basis versus the S&P500.”