Expected USD/CAD Range: 1.048 – 1.055 Update: After a tumultuous week of almost relentless US Dollar strength, we are entering the last week of the summer with the Loonie at 1.050. This morning’s weaker than expected economic data (Durable Goods Orders at -7.3% vs consensus of -4.0%) will continue to fuel the debate as to whether fed tapering begins in September, and if it does, the form and extent of such a move. We have been and continue to be long-term USD bulls (see below). However, with the 2% move last week and the market now so fully convinced of imminent monetary tightening by the Fed, in the short term, it might be time to consider “selling the news” and past the time to “buy the rumor”. 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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