Expected USD/CAD Range: 1.040 – 1.048 Update: The Canadian Dollar is weaker overnight and trading near two months low at 1.044. The market is intently focused on economic data points due out later this week. Either they will reinforce the developing sense that the Canadian economy is stronger than expected as indicated by the GDP figure last month or they will show that the GDP mark was a blip and that our Central Bank is seeing things right in anticipating slower growth. If the economic figures (building permits and employment) are strong, the market will reconsider the negative bias towards the Canadian Dollar. Otherwise, expect the loonie to continue to decline. 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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