Expected USD/CAD Range: 1.030 – 1.036 Update: The Canadian Dollar is slightly weaker this morning and trading around 1.033. For this first week of the shutdown of the US Government, the loonie is one of only two major currencies that is down against the US Dollar (the other is the Pound Sterling reacting to tempered expectations about the strength of the UK economy). Aside from worries about the impact on the Canadian economy, another factor contributing to CAD weakness is the widening spread between Western Canadian Select and WTI oil prices which is now at its highest levels since January. 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.
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