Expected USD/CAD Range: 1.062 – 1.067
Update: Canadian Dollar sellers seem exhausted for now. The loonie is down roughly 2% in the last two weeks but seems to have settled down at its current level of 1.0652. Even the Bank of Canada’s more dovish statement on Wednesday did not move the loonie lower. We are now waiting for employment figures in the US and Canada at 8:30 as the last economic event of the week. While we remain bearish on the loonie in the long term (see below), we continue to think that the Canadian Dollar has reached its lows for the rest of the year.
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 7% relative to the USD since the beginning of the year and we expect it to continue declining next year.
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