Updates (2013-2014)

Expected USD/CAD Range: 1.063 – 1.070

Update: Finance Minister Jim Flaherty cued up the year for us with this on a Sunday television show: “The governor [Poloz] was with us recently with the provincial ministers and he indicated there might be some softening in the dollar… but the dollar in the nineties somewhere is good for manufacturing.” That combined with overall US Dollar strength has the loonie trading weaker and around 1.068 last. Our core thesis remains unchanged (see below). We continue to see a gradually weakening loonie with an outside possibility of a sharp reversal on any unexpected news given the universal sentiment in favour of a weaker loonie.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.059 – 1.065

Update: The weather is cold, the trading is thin and the news is slow but the main theme of the year for the Canadian Dollar and the Canadian economy has already taken shape. How does Governor Poloz balance the risks of disinflation against those of asset inflation, especially in the real estate markets? At the moment, the Governor seems more focused on fighting off disinflation and therefore the markets are bearish on the Canadian Dollar. The recent volatility resulting from the lack of liquidity in the holiday trading sessions notwithstanding, we expect the Canadian Dollar to begin trading closer to 1.070 than to 1.060 next week. We are currently at 1.062.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October.  Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.061 – 1.069

Update: 2014 welcomes us with a deluge of worldwide economic data. First, Chinese manufacturing data for December came in softer than expected. Weekly US initial jobless claims came in below expectations but were revised up for the prior week. ISM Manufacturing and US construction spending will be out at 10. The Canadian Dollar is basically flat to last year’s close and volumes remain depressed given the holiday schedule. The overwhelming sentiment in the market continues to be for a weaker loonie in 2014 with tapering continuing to be a main theme in the forex markets.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.066 – 1.073

Update: The Canadian Dollar continues to be whiplashed in choppy markets resulting from the low liquidity of the holidays. The loonie is now at 1.070 and right around where we closed last week. Trading is generally listless and directionless as there is little economic data on the agenda for the next several days. While we did break through the 1.070 level on Friday there is little conviction in the trading in either direction.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.065 – 1.070

Update: In light of the holiday schedule, while the markets are open today, trading volumes are thin and therefore pricing not particularly reflective of any fundamental developments. However, a few broad themes stand out; US Dollar weakness and EUR strength. The greenback is weaker against all major currencies except the Japanese Yen and the Canadian Dollar. Despite overall USD weakness however, the loonie is even weaker and trading at its lowest in about one week (1.066). The euro moved up due to comments from an ECB council member potentially foreshadowing higher rates.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but has dropped its tightening bias since October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.065 – 1.070

Update: With the nearly year-long taper debate behind us and with little economic data to go, this morning’s prints seemed to confirm the two obvious themes in the market. The US economy is humming (GDP above consensus) and the Canadian economy is operating at lower than optimal inflation rates. The Canadian Dollar reacted somewhat violently to the news and gave up half a penny. The impact seemed to be temporary though and we are now back at yesterday’s closing levels of 1.068. The loonie seems to be holding on to the 1.07 level with some surprising tenacity despite the negative data.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but has dropped its tightening bias since October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.066 – 1.072

Update: The Canadian Dollar is now comfortably around the 1.070 level, the weakest level in about three years. Yesterday afternoon, the FOMC began the process of reducing its extraordinary monetary stimulus program. The Fed also announced that short-term interest rates would stay low long after the bond-buying program ends. This first step of the taper is small (5bn from each of the two programs) and the Fed went out of its way to indicate that its future path would be data dependent. The market reaction was somewhat limited but the Canadian Dollar did trade down about a penny to its current level.

The Big Picture: Canada’s new central banker is cautiously optimistic about the economy but shows no inclination towards raising rates in the next several quarters. In fact, the low dollar policy being pursued by the bank suggests …

Expected USD/CAD Range: 1.054 – 1.068

Update: The last statement of the year from the Federal Open Market Committee will be released at 2:00 this afternoon. All asset markets, including and especially currency exchange markets, are waiting to find out whether the US central bank will begin winding down (“taper”) the monetary stimulus programs. Consensus is almost evenly split as to whether that process will begin this month or sometime in the following year. Our view is that tapering is more likely to begin in early 2014; while the US economy has shown some strength in the last several weeks, the results have not yet been sufficiently consistent or sustained to justify the beginning of the end of monetary stimulus.

The Big Picture: Canada’s new central banker is cautiously optimistic about the economy but shows no inclination towards raising rates in the next several quarters.  In fact, the low dollar policy being pursued by the bank suggests …

Expected USD/CAD Range: 1.056 – 1.063

Update: All eyes are on the Fed’s announcement tomorrow; will it begin cutting back extraordinary monetary stimulus (“taper”) this year or wait for the following months. There has been quite a dramatic shift in consensus with a slight majority now believing that a taper announcement of some sort is forthcoming tomorrow. The shift has been due to changing perception of the strength of the US economy as data in recent weeks has surprised to the upside. The US Dollar is slightly stronger across the board, including against the loonie which is now trading at 1.060. We expect little change until tomorrow’s announcement.

The Big Picture: Canada’s new central banker is cautiously optimistic about the economy but shows no inclination towards raising rates in the next several quarters.  In fact, the low dollar policy being pursued by the bank suggests …

Expected USD/CAD Range: 1.056 – 1.063

Update: The Canadian Dollar is hovering around 1.059 and generally flat with little economic data on the tape this morning in Canada. US industrial production was well ahead expectations and strengthened the argument for at least the beginning of taper later this week by the Fed. The sentiment continues to be overwhelmingly negative on the loonie both in the retail press as well as in the investment community. This uniformity in view continues to argue for a short term recovery (even more than what we saw last week).

The Big Picture: Canada’s new central banker is cautiously optimistic about the economy but shows no inclination towards raising rates in the next several quarters. In fact, the low dollar policy being pursued by the bank suggests …