Expected USD/CAD Range: 1.039 – 1.046 Update: With little economic data to guide the market, the focus in Canada is again on real estate. In particular, a report from the OECD and a report from a mortgage broker’s association are once again raising alarm about the real estate market in Canada. Earlier this morning, the Canadian Dollar was lower on the back of weak oil prices but both of those trends have now reversed and the loonie is now back at 1.043 with little resolve in either direction. The ongoing short term themes are US Dollar weakness with no end to monetary stimulus in sight, reverberations from the announcement of Chinese economic reform and the Bank of Canada’s ongoing battle to prop up exports by lowering the Canadian Dollar. 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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