Expected USD/CAD Range: 1.053 – 1.057 Update: The Canadian Dollar is at its lowest level since early September. The sell-off reflects a variety of factors, including the market’s ongoing response to dovish comments by Poloz as well as weaker commodity prices. For the first time in a while there was quite a bit of attention being paid to this morning’s CPI figures in Canada. They came in generally in line with expectations and confirmed that inflation is below the Bank of Canada’s target range. Retail sales for September were quite a bit stronger than expected in Canada. The releases did not impact the market and he loonie continues to hover around 1.055. 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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