Expected USD/CAD Range: 1.037 – 1.042
Update: The Canadian Dollar is down another 0.4% overnight and trading at 1.043. The Loonie has now fallen four days in a row and is now trading at the lowest level since the middle of July (see 30 day chart below). The strength of the USD is being attributed to expectations that the release of the fed minutes at 2:00 PM this afternoon will bring additional evidence that Fed will begin to “taper” its bond buying program in September. That line of thinking is dominating fx markets today with the US Dollar strengthening across all major currencies.
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.
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