Home CAD: 2 Sources Of Fresh Downside Risk – Credit Agricole
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CAD: 2 Sources Of Fresh Downside Risk – Credit Agricole

The Canadian dollar trades in a relatively wide range  and it remains vulnerable.

Here are two risk sources according to Credit Agricole:

Here is their view, courtesy of eFXnews:

The challenging backdrop for CAD should persist in the final quarter of the year. We highlight two key factors that underpin this view.

First is the relative monetary policy outlook between the Fed and the BoC. Our estimates show that the relative two -year interest rate differential has been the key driver behind USD/CAD over the past six months. Specifically, a 10bp rise in the spread has coincided with a 15 cent rise in USD/CAD. Moving forward we expect the BoC to cut rates at the October meeting while our US economists expect the Fed hike at the October meeting. This divergence in policy should widen the interest rate differential to levels not seen since the mid -2000s. We also note that the Canadian economy has yet to respond to the 20% drop in Canada’s REER over the past three years. In our view this reflects structural rather than cyclical economic issues.

Second is the outlook for oil. We expect a lower -for -longer oil outlook, which is likely to weigh on Canadian capex growth. Indeed, excess supply and a stronger USD pose downside risks to oil prices into next year, adding fresh headwinds to the outlook for CAD.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.