BNY’s Bob Savage highlights a sharp reversal in Canadian Dollar (CAD) flows ahead of the June Bank of Canada (BoC) decision versus April, when CAD was generally bid. He links weaker CAD interest to softer real and nominal rates, expectations that the BoC will be among the most dovish G10 central banks, and shifting Fed pricing that is altering hedging preferences across the Americas.

Flows shift as policy expectations change

"The CAD has fully reversed its flow situation heading into the June decision compared to April, when flows were generally bid."

"With the BOC expected to be among the most dovish in G10, the lack of interest is understandable."

"We may even have to wait for the Fed decision next week before a clearer flow picture emerges."

"Surprisingly, cross-border investors have been more willing to capture CAD exposures compared to CAD-denominated accounts."

"Measured against underlying asset flows, it’s hard to also attribute these flows to asset liquidation, so there could be a fundamental aspect back in play, especially with holdings levels remaining favorable on top of good valuations."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)