Expected USD/CAD Range: 1.040 – 1.045 Update: The Canadian Dollar is stronger this morning and trading around 1.0425. The strength is primarily due to US Dollar weakness on the back of strong Euro-zone and UK economic data. Building permits in Canada came in below expectations but Toronto reported strong price and volume growth in real estate. In our view, the market will continue to be in this range until we get employment and GDP figures out the US tomorrow morning. 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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