Expected USD/CAD Range: 1.060 – 1.065 Update: The US Dollar is broadly lower against most majors this morning. With little economic data on the North American calendar to give the market direction, we are mostly at the mercy of technicals and as we have argued for several days, USDCAD has moved up too far too fast and is in line for mild correction. We may be seeing the beginning of that correction this morning with the loonie gaining some strength and trading around 1.062. 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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