Expected USD/CAD Range: 1.047 – 1.052 Update: It has been all about US economic data the last couple of mornings. Retail sales came in stronger than expected and CPI came in at expected levels yesterday morning. This morning, initial jobless claims came in slightly below expectations PPI was just above expectations. All in all, a mixed picture of the economy providing no particular clue about how quickly the Fed will begin tapering its extraordinary monetary stimulus. Closer to home, Governor Poloz gave testimony before the Senate which was interpreted as dovish, leading to weakness in the Canadian Dollar which is currently trading at 1.049. 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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