TDS Analysts Suggest Buying USD on Dips Against CAD

In the latest analysis by TDS FX experts Jayati Bharadwaj and Mark McCormick, they suggest that now is a good time to buy USD on dips, particularly against currencies like the Canadian dollar (CAD) where risks tied to President Trump’s policies remain underappreciated. Two main factors dominate the current discussions: tariffs and positioning.

The analysts argue that markets have been overly optimistic in pricing out tariff premiums on the USD/CAD exchange rate. While tariffs may not be the final solution, they are a critical tool in the negotiation process, especially concerning the US-Mexico-Canada Agreement (USMCA), where discussions are yet to begin. Tariffs could remain in place for some time to push Canada to the negotiating table and restructure the agreement.

Additionally, TDS's proprietary positioning model reveals that the USD has shifted from an extreme long position to a more neutral stance on a six-month scale. Given this, they believe that dips in the USD represent a buying opportunity, particularly against currencies like CAD and the euro, which have not fully priced in the potential risks of Trump’s policies.

The analysts highlight that positioning alone is no longer a strong argument for a USD bear stance. Markets may sustain a long USD position for an extended period, similar to the trade war period between 2018-2019. TDS has recently gone long on USD/CAD call spreads with a three-month expiration.

The firm’s macro framework, MRSI, assigns a negative trading weight to CAD, driven by weak fundamentals and a sluggish macro outlook, which is compounded by rising trade uncertainty and domestic political instability in Canada. With limited fiscal response options, especially in the face of potential tariffs, TDS expects USD/CAD to rise in the coming months.