Expected USD/CAD Range: 1.029 – 1.035 Update: With no major economic data expected out of the US or Canada today, the markets remain focused on the political scene in Washington. It has now become clear that what started as a budget showdown is evolving into a broader standoff involving the more serious issue of the debt ceiling. The markets are generally taking all of this in stride with a mild repricing of risk in all asset classes. The Canadian Dollar is currently trading at 1.032 and exhibiting no desire to break out of its recent range. We think the dynamics in Washington will get worse before they get better and therefore expect the loonie to be weaker in the short term. 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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