Expected USD/CAD Range: 1.027 – 1.033 Update: The Canadian Dollar has now given up almost all of the gains made since Wednesday’s surprise Fed announcement that there would be no immediate tapering of QE3. The loonie is now trading right around 1.030. Overnight, there was a strong reading on a measure of Chinese manufacturing which along with other factors has some believing that China is experiencing a rebound from the first half’s slowdown. The impact on the Canadian Dollar was minimal and fleeting. Also, it has become clear that Chancellor Merkel will be back in Germany for another four years (though the exact makeup of her coalition remains to be determined). That fact firmed up the Euro but EURUSD is right back at Friday’s levels. The Big Picture: The commodity boom has seemingly ended (or is at least sputtering). Relatedly, Chinese and other emerging market economies have slowed notably and while some of the data from China is encouraging, it is becoming clear that sub 8% growth in China is here to stay. 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. Closer to home, Canada’s new central banker is optimistic about our recovery but shows no inclination towards raising rates in the next several quarters. As a result of all of this and not surprisingly, the CAD has declined over 3% 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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