Expected USD/CAD Range: 1.053 – 1.059 Update: The Canadian Dollar is trading at 1.055 and continues to hover near four month lows. The major theme continues to be oil prices and the potential impact of the agreement over nuclear issues between Iran and the world powers. We believe that while the Canadian Dollar will trade lower over the long term (see below), in the near term we will see a higher Canadian Dollar and that short term US Dollar sellers should take advantage of the opportunity and sell now. 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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