Expected USD/CAD Range: 1.056 – 1.063 Update: All eyes are on the Fed’s announcement tomorrow; will it begin cutting back extraordinary monetary stimulus (“taper”) this year or wait for the following months. There has been quite a dramatic shift in consensus with a slight majority now believing that a taper announcement of some sort is forthcoming tomorrow. The shift has been due to changing perception of the strength of the US economy as data in recent weeks has surprised to the upside. The US Dollar is slightly stronger across the board, including against the loonie which is now trading at 1.060. We expect little change until tomorrow’s announcement. 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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