Expected USD/CAD Range: 1.053 – 1.059 Update: It’s all about… oil! For the third day in a row, oil prices are driving the Canadian Dollar. The dip in oil prices this morning has moved the Canadian Dollar to 1.057 and we are now hovering right around the lowest levels since the middle of 2010. The rash of US economic data out this morning failed to make much of an impact, though US initial jobless claims came in at better than expected levels. We believe that for technical reasons, in the in the near term (two week time horizeon), we are not going to sustain these levels and that US Dollar sellers should take advantage of this opportunity. Our longer remains the same and is outlined below. 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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