Expected USD/CAD Range: 1.028 – 1.033 Update: The Canadian Dollar continues to meander around 1.030. This morning’s data reinforced the status quo picture of the US economy experiencing a mild (and mixed) recovery with initial jobless claims coming in at slightly better than expected and GDP and consumption figures just below consensus. The fiscal impasse between Congress and the President has caused a minor bias against the US Dollar but is largely (and in our opinion, rightly) being ignored by the markets. In the absence of unexpected headlines, we expect this kind of directionless trading in USDCAD rates until we hear more from the Fed about its future plans for QE3. 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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