Expected USD/CAD Range: 1.042 – 1.047 Update: Another generally directionless morning looms for the Canadian Dollar. On the one hand, the dovish comments by outgoing Fed Chairman Berananke led to US Dollar weakness overnight. On the other hand, strong retail sales figures from our southern neighbors suggest the US economy is stronger than the recent comments by Fed officials imply. At the moment, we are trading around 1.045 and there is little reason to think we will see a break out in either direction unless we see a surprise in the Fed release scheduled for 2 PM today. 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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