BCA Research recommends buying the euro against the Canadian dollar.

In a research note, the firm says that its Foreign Exchange Strategy service recommends that clients buy the euro versus the Canadian dollar, noting, “The Bank of Canada has moved to the sidelines at the same time that the European Central Bank is normalizing borrowing costs, which is bullish for the euro versus the Canadian dollar.”

“Interest rate expectations have been an important driver of the euro versus the Canadian dollar, although the relationship broke down during the early part of this decade,” it adds.

“A risk to this view is the possibility that the BoC does a policy flip-flop, and begins to tighten once again,” BCA says. “However, it is unlikely that the Canadian economy will accelerate given our view that the U.S. economy will continue to slow. The business cycle in Canada usually moves closely with the U.S., which implies that the BoC will remain on hold for the foreseeable future now that the Fed is set to pause.”