Expected USD/CAD Range: 1.042 – 1.047
Update: Canadian Dollar weakness continues in response to Wednesday’s surprise announcement by the Bank of Canada. The loonie, now trading at 1.044 is the weakest performing major in the last few days and is down 1.36% this week alone. We believe that the selling has subsided and that the loonie will hold these levels in the short term.
The Big Picture: Canada’s new central banker is cautiously optimistic about the economy but shows no inclination towards raising rates in the next several quarters. In fact, the low dollar policy being pursued by the bank suggests no interest rate moves until 2015. Globally, the commodity boom has 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. As a result of all of this and not surprisingly, the CAD has declined over 6% 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.
Account to Account