Expected USD/CAD Range: 1.046 – 1.052
Update: The Canadian Dollar is now trading right at the 1.050 mark. The move is a reflection of the overall strength of the US Dollar this morning and comes after a volatile twelve hours. Yesterday afternoon, Janet Yellen, the future chairman of the Fed argued that much further US economic progress is needed before stimulus is reduced. That led to a significant drop in the US Dollar. But by this morning the greenback had regained all of that ground and then some, especially against commodity currencies like the loonie.
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 6% 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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