Expected USD/CAD Range: 1.042 – 1.047
Update: The Canadian Dollar is flat to last week’s close this morning at 1.044. The focus this week is on the FOMC announcement expected on Wednesday. While the announcement is unlikely to make much news, market participants will be looking for clues to the US central bank’s inclinations as to the timing and nature of any future pullback of the existing monetary stimulus programs. We expect the Canadian Dollar to see some technical strength this week after the significant sell-off last week and would encourage US Dollar sellers to take advantage of the current levels.
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.
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