Expected USD/CAD Range: 1.057 – 1.062 Update: The Canadian Dollar is now comfortably trading at the lowest level since June of 2010. The immediate reasons are the lower price of oil since the nuclear agreement announced this weekend and the upward revision of Q2 current account deficit announced this morning. There is also renewed attention being paid to the Goldman Sachs report out earlier which identified shorting the loonie as one the firm’s top investment ideas for 2014. The move fits with our long held view of the Canadian Dollar weakening over the longer term. However, we continue to see the recent leg up as too far too soon and would suggest that US Dollar sellers take advantage of the situation. 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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