Expected USD/CAD Range: 1.027 – 1.033 Update: Better than expected July retail sales figures in Canada firmed up the Canadian Dollar earlier this morning. But the loonie almost immediately gave up its gains on weaker oil prices and is now trading roughly flat to yesterday’s levels at around 1.030. The USD is stronger against most other major currencies and there is quite a bit of focus on the schedule of Fed speakers this week as the market continues to seek clarity on the status of future tapering decisions by the Fed. We continue to think that the Canadian Dollar will remain at these levels for the near future. 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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