Expected USD/CAD Range: 1.028 – 1.035 Recent Developments: Strong retail sales figures in Canada and weaker than expected manufacturing figures in the US (all released this morning) have propelled the loonie to its strongest level in about a month. Other factors causing the short term strength are the recent strength in the price of gold as well as the market’s evolving view as to the expected timing of Fed tapering. The market is now focused on US jobs numbers out later this week. 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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