Canadian Dollar Update

Expected USD/CAD Range: 1.026 – 1.031 Recent Developments:  The Canadian Dollar should be generally stable and trading at one month highs with a light economic calendar early in the week. The market is focused on the Fed announcement on Wednesday where there could be additional indications as to the timing of the expected “tapering” of monetary stimulus. Also, on Wednesday we will get a monthly reading on Canadian GDP figures. We do not expect the HBC deal announced this morning to have anything other than minor and temporary impact on the loonie. 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 policies aimed at balance sheet expansion.  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 5% 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.