Expected USD/CAD Range: 1.038 – 1.046
Update: The Canadian Dollar is showing some strength and trading the around the 1.040 level. Some of the strength is attributable to the strength is the Australian Dollar being interpreted as showing improved prospects for commodity-based currencies. The failure of Blackberry to sell the company is dominating the business headlines in Canada but is largely impactful on the exchange rate. US Factory Orders for September are out at 10 AM and will be the main economic data point of the day.
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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