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In Updates (2013-2014)

Canadian Dollar Update

Expected USD/CAD Range: 1.092 – 1.098

Update: After spending most of the morning above the 1.10 level for the first time since 2009 on the back of broad US Dollar strength, the loonie regained some lost ground after a better than expected Canadian manufacturing figure sales figure and is now trading around 1.097. More importantly, the market remains very much focused on the Bank of Canada statement tomorrow. We believe that the market is positioned for a marginally more dovish statement and that it may very well be disappointed in that expectation. As a result, while we anticipate that the loonie will be weaker by the end of the year, we think it is poised for a short term rebound after the tomorrow’s announcement.

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 …

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In Views

What is the Bank of Canada Likely to Say on Wednesday?

There is widespread anticipation that the Bank of Canada’s statement this week will carry a more dovish tone than the previous statement in December. Some believe that it could even carry an explicit reference to a future rate cut. We do not agree with the consensus. First, as we discuss below, not enough has changed since December to necessarily justify action. Second, both quantitative and anecdotal evidence suggests that the market is already heavily positioned for a more dovish tone and therefore the risks are to the upside for the Loonie coming out of this announcement. That is, unless we get a fairly significant and explicit change in tone, Canadian Dollar shorts are likely to be disappointed.

The key parts of the Bank’s statement from December are shown below in Italics, followed by our commentary.

The global economy is expanding at a modest rate, as the Bank expected. Although growth in several emerging markets has continued to ease, growth in the United States during the third quarter of 2013 was stronger than forecast. Even if some of this pickup was due to temporary factors, the data are consistent with the …

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In Updates (2013-2014)

Canadian Dollar Update

Expected USD/CAD Range: 1.092 – 1.098

Update: The Canadian Dollar is stronger by just a touch this morning and trading at 1.095. The focus is almost entirely on the Bank of Canada statement on Wednesday. While no one expects a rate cut, nearly all market participants seem to agree that the statement might hint at such a move or at least be more dovish than the December statement. Indeed, the market seems to have priced in such a sentiment. We do not agree with the consensus view on this one. First, we are not sure that the statement will indicate a change in the stance of the Bank of Canada. Second, we are concerned that the level of market unanimity on the issue might be setting us up for a significant reversal. We continue to believe that the Canadian Dollar will depreciate over the course of the year but would be buyers in the short term, especially into the Bank of Canada announcement this week. Most US markets are closed due to the MLK holiday.

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 …

Read More
In Views

The Analyst View of the Canadian Dollar

Where do the analysts expect the Canadian Dollar to be at the end of the first quarter? The yellow line is consensus forecast at near 1.070. The white line is the current price at 1.095. The options market implied probabilities are the curved bell line. The green bars are the distribution of analyst forecasts.

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