Expected USD/CAD Range: 1.032 – 1.037
Update: The Canadian dollar is mildly stronger this morning after a report out of the euro area indicated stronger than expected economic growth and painted a picture of a region finally emerging from its economic malaise. The prospects of the euro area emerging out of recession is helping all risk-assets this morning including commodity currencies such as the Canadian dollar. At the same time, subdued inflation figures out of the US have put pressure on the US dollar as investors continue to adjust expectations as to the timing of Fed tapering. The net result is that the Canadian Dollar is stronger by roughly 0.1% to 1.330.
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.
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