The BoC rate cut helped boost USD/CAD to the 1.30 target in our Fundamental Portfolio, and GBP/CAD to the 2.01 target of our Trade of the Week. It is expected both pairs should see higher levels in Q3/Q4, but trading-wise, it's better to wait for at least a modest pullback before re-entering a position.

"Market expectations for the Canadian outlook and BoC policy were reset last week, with the Bank having established what looks like a low bar for activity data in the coming weeks/months. They now look for -0.5%q/q ann. in Q2, and +1.5% in Q3. What's perhaps more important though is that their rhetoric shifted from looking for rebound beginning in Q2, to now calling for the pickup in activity in Q3. What that does is take some of the weight out of Q2 data, which could mute the market impact of Canadian activity releases until we begin to see early signs on Q3" says RBC.

In addition to the low bar the BoC has now set, the market seems primed for bearish news from Canada. Looking at BAX and OIS markets shows about a 30-40% implied probability of another cut from the BoC by the end of the year, and last week's IMM data showed the most extreme level of CAD shorts since March 2014 (even greater than just after the surprise cut in Jan. 2015). With that in mind, it is hard to find any significant new catalysts for CAD to sell off in the short term, or for USD/CAD to breach the 1.3065 highs from 2009. This week will be much thinner on news out of Canada, and the only noteworthy development to watch is the May retail sales report on Thursday. Expectations are for a small rebound from April.

"Overall, when we consider the larger themes driving CAD, we continue to like being short against USD and GBP in particular over the longer run. In the short run however, a lot more bearishness on CAD has already been priced-in, and we prefer waiting for a pullback before reentering a position", notes RBC.