Expected USD/CAD Range: 1.056 – 1.063 Update: The Canadian Dollar is hovering around 1.059 and generally flat with little economic data on the tape this morning in Canada. US industrial production was well ahead expectations and strengthened the argument for at least the beginning of taper later this week by the Fed. The sentiment continues to be overwhelmingly negative on the loonie both in the retail press as well as in the investment community. This uniformity in view continues to argue for a short term recovery (even more than what we saw last week). 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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