Expected USD/CAD Range: 1.061 – 1.066
Update: This morning, US PPI figures once again confirmed that inflation is not a threat in the United States. In Canada, Governor Poloz yesterday also reaffirmed that in his view the Central Bank’s main challenge at the moment is balancing the threat of disinflation versus containing asset bubbles (in particular in real estate). He steadfastly refused to comment on the value of the Canadian Dollar. All in all, his speech and press conference were more balanced than dovish and the Canadian Dollar reacted by strengthening 20 pips. We are currently trading at 1.064 with little volatility expected between now and the end 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 7% relative to the USD since the beginning of the year and we expect it to continue declining next year.
Account to Account
