CS FX Trade Idea of the Week:
G10 Trade: Short CADNOKRationale: Oil prices juggle two headlines this morning; the near-term focus seems to be more on Canadian wildfires whereas the medium-term development is the Saudi oil minister change (which most oil analysts including our own see supporting the idea that Saudi production is unlikely to be cut in June). In FX we expect wildfires to be more negative for CAD compared to other oil currencies such as NOK. Moreover NOK is also likely to be supported this week due to economic factors; (1) Norges Bank should stay on hold and is unlikely to signal any urgency to cut, and (2) our expectation for better inflation and GDP data this week. For further information please also see our weekly calendar here. The risk of the trade could stem from a possible spread developing between Brent and WTI oil prices.
EM Trade: Long TRYZARRationale: Soft China trade data overnight, especially hard commodity demand, suggest downside risks for commodity-linked currencies like the rand are growing (see here). However the theme might be less visible in USDZAR given last week’s weak US payrolls – so we look to short lira against other EMEA currencies. TRYZAR offers good levels after last week’s sharp move lower due to Turkish political turbulence. With ‘new news’ on Turkey’s political situation unlikely this week and the lira already having repriced, we think TRYZAR could be due for a catchup higher (see here too). The risk to the trade could be unexpected geopolitical developments
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