Expected USD/CAD Range: 1.047 – 1.054 Update: The US Dollar continued to make broad gains against most major currencies both before and after yesterday’s release of the FOMC minutes which seemingly confirmed that tapering is coming later this year. The Loonie is now trading at 1.051 and down 1.6% this week. There is quite a bit of focus on rising government bond yields which in some cases are at multi-year highs and coincide with news that RBC is raising its mortgage rates. As Bloomberg reports today, rising bond yields and the falling Loonie are creating exactly the kinds of conditions that the Bank of Canada was looking to create by moving the economy away from domestic spending towards export-led growth. 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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