Expected USD/CAD Range: 1.030 – 1.036 Update: With the US government shutdown going into its second week and the budget/Obamacare debate merging into the debt ceiling issue, the markets are starting to take the potential for a government-induced economic shock more seriously. Across all markets this has meant a higher premium for risk, which in the currency exchange markets translates into a lower value for the Canadian Dollar. The loonie is down 0.3% and trading around 1.033. Much of the economic data which typically guides daily trading in the market is not being released due to the shutdown which is adding to the sense of uncertainty around the state of the economy in the US. In Canada, the value of building permits issued by municipalities has slowed more than expected. All in all, we think the Canadian Dollar is headed lower in the short term until we get hints of a potential resolution to the shutdown. 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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