Expected USD/CAD Range: 1.039 – 1.046 Update: The Canadian Dollar is trading around 1.042, its strongest level in about a week. Much of the strength is due to news out of China suggesting that the government is leaning towards expanding economic freedoms. That has led to firming of commodity prices as well as other risk assets, which has in turn strengthened commodity currencies such as the loonie and the Australian Dollar. In addition, the Janet Yellen’s comments on the continued need for monetary stimulus continue to reverberate and push the US Dollar lower across the board. 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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