Expected USD/CAD Range: 1.048 – 1.055
Update: Something somewhat unusual is going on this morning; crude oil is up 2% but the Canadian Dollar is down 0.3% to 1.053. Well, perhaps not so strange when you consider the dominant theme moving markets today is worries about US military engagement in Syria. The possibility of war is weighing on all risk assets, including the Loonie. With the US public war-weary, the Chinese and Russians opposed and the evidence of blame for chemical weapons use still murky, we view these worries as overstated at the moment.
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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