Expected USD/CAD Range: 1.054 – 1.068 Update: The last statement of the year from the Federal Open Market Committee will be released at 2:00 this afternoon. All asset markets, including and especially currency exchange markets, are waiting to find out whether the US central bank will begin winding down (“taper”) the monetary stimulus programs. Consensus is almost evenly split as to whether that process will begin this month or sometime in the following year. Our view is that tapering is more likely to begin in early 2014; while the US economy has shown some strength in the last several weeks, the results have not yet been sufficiently consistent or sustained to justify the beginning of the end of monetary stimulus. 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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