Expected USD/CAD Range: 1.062 – 1.067 Update: Another eventful day for the Canadian Dollar which is weaker by about the penny since the open of North American Trade this morning. The biggest driver of the move has been a broad-based rally of the US Dollar resulting from stronger than expected retail sales in November. While weekly initial jobless claims were higher than expected, they were quickly dismissed as a statistical anomaly. Along with the series of strong data that we have been receiving from the US over the last couple of weeks, murmurs are now starting to get louder as to the possibility of tapering beginning at the Fed’s final meeting next week. Closer to home, we are awaiting comments from Governor Poloz in the afternoon followed by a press release. Given the recent turn to “dovish street”, the markets are watching closely for any signs as to whether the Bank of Canada is really thinking of a rate cut to tame disinflation. 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 7% relative to the USD since the beginning of the year and we expect it to continue declining next year.
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