Expected USD/CAD Range: 1.027 – 1.033 Update: The week has generally been quiet for the Canadian Dollar with the loonie roughly flat to yesterday’s levels at 1.030. Currency traders are focused on the near term on the possibility of a government shutdown in the US resulting from the battle over funding Obamacare and increasing the debt ceiling. We expect a compromise to be formulated in the next several days. A measure of new home sales in the US is scheduled to be release at 10 this morning and there is also significant attention focused on US initial jobless claims and GDP figures coming out tomorrow. Collectively, these data points will provide the first substantial look at the US economy since the Fed’s no-taper decision last week and will go a long way in impacting market expectations with respect to the possibility of tapering in the remaining months of 2014. 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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