Canadian Dollar Morning Update

Expected USD/CAD Range: 1.028 – 1.035 Update: The US debt ceiling has been raised and the government has been reopened. The Canadian Dollar is trading at a one week high at 1.031. In fact the US Dollar is weaker against all major currencies as the extended standoff in Washington has pushed consensus expectations as to the timing of tapering by the Fed to 2014. We tend to agree with that consensus. Now, the focus returns to economic data and the strength of the economy both here in Canada as well as the US. The debt ceiling debate will be revisited after the holidays at which point the dynamics will be entirely different. The Big Picture: The commodity boom has seemingly ended (or is at least sputtering).  Relatedly, Chinese and other emerging market economies have slowed notably and while some of the data from China is encouraging, it is becoming clear that sub 8% growth in China is here to stay.  At the same time, the ongoing (admittedly halting) recovery in the US will sooner or later lead to a tapering of the Fed’s bond purchase programs.  Closer to home, Canada’s new central banker is optimistic about our recovery but shows no inclination towards raising rates in the next several quarters.  As a result of all of this and not surprisingly, the CAD has declined over 3% relative to the USD since the beginning of the year.  We expect the CAD to be even lower relative to its US counterpart by the end of the year.