Expected USD/CAD Range: 1.027 – 1.034 Update: The US Dollar is weaker across the board as a result of the announcement yesterday that Larry Summers, the previously favourite choice to replace Ben Bernanke, has withdrawn himself from consideration. Compared with Janet Yellen, now viewed as the most likely choice, Summers was considered the more hawkish candidate. All markets immediately reacted to the news with US treasuries yields trading down and equity futures up. The Loonie gained 0.5% and currently trading at the 1.030 level. The market was already expecting a big news week with the much anticipated Fed decision on tapering in September expected on Wednesday. Most market participants still expect tapering to begin in September but a recent rash of somewhat mixed economic data out of the US has muddied the probability of that outcome for most investors. 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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