Expected USD/CAD Range: 1.035– 1.040 Update: The strains resulting from the US shutdown are now starting to show on the Canadian Dollar which is down for the third day in a row and trading at 1.038. The loonie is now trading at a one month low relative to the US Dollar. The federal government’s rejection of the proposed transaction to sell Allstream to a foreign buyer on national security grounds is contributing to a growing sense that purchases of Canadian companies by foreigners are increasingly difficult and also mildly negative for the Canadian Dollar. The nomination of Janet Yellen, perceived as an “easy money advocate”, to replace Ben Bernake as Fed Chairman was largely expected and priced into markets. The release of minutes from the September meeting is scheduled at 2 today and should provide insight into the surprise decision not to taper last month. 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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