Expected USD/CAD Range: 1.032 – 1.039 Update: The possibility of a diplomatic solution in Syria has repriced risk in the market and helped all the so called “risk currencies”, including the Canadian Dollar. That sentiment was complemented with still more positive data out of China. The loonie is now trading at 1.035. With the possibility of Syrian military action now on the backburner, the market is likely to get refocused on economic data. Market participants will be dissecting every release for what it says about the strength of the US economy and the nature and magnitude of the Fed’s tapering response later this month. 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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