Canadian Dollar Morning Update

Expected USD/CAD Range: 1.027 – 1.034 Update:  The Canadian Dollar is trading at 1.032, slightly stronger than yesterday’s close.  The Loonie benefitted from stronger than expected Canadian manufacturing sales figures this morning.  The focus continues to be on the much anticipated Fed decision tomorrow afternoon as to the timing and magnitude of “tapering”.  One survey of economist found a median expected reduction of $10 billion in bond purchases to be announced tomorrow.  We continue to think that the intense focus on the details of the Fed decision is misguided and misses the bigger picture.  The era of easy money is over and whether the beginning of the end comes tomorrow or in October is largely irrelevant as markets have already adjusted to expectation of a reduction in bond purchases as well as a medium term increase in interest rates. The Big Picture:  The commodity boom has seemingly ended (or is at least sputtering).  Relatedly, Chinese and other emerging market economies have slowed notably.  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 to the timing of the announcement, there seems to be broad consensus forming about tapering beginning later this year with a majority of analysts focused on September.  Closer to home, Canada’s new central banker shows no inclination towards tightening in the near future.  As a result of all of this and not surprisingly, the CAD has declined 4% relative to the USD since the beginning of the year.  We expect the CAD to be even lower relative to its US counterpart by the end of the year.