CAD at crossroads: where next?

The Canadian dollar is looking for a new direction after the big correction. What’s next? Here are two opinions:

Here is their view, courtesy of eFXnews:

CAD: What CAD’s 2 Biggest Driver Say About USD/CAD M/T Direction & Target? – CIBC

CIBC FX Strategy Research argues that  CAD’s two biggest drivers, oil and rate spreads with the US, point to USD/CAD rebound in the medium-term.

“A further $15/bbl on WTI would mean it would have to reach a post-2015 high. Meanwhile a further 50-bp move in rates spreads in favour of Canada would necessitate Governor Poloz hiking through the Fed. Despite the recent more hawkish tone, that seems unlikely particularly with inflation still low.

With oil and rate spreads unlikely to be able to drive a further leg higher, we continue to favour some weakening in the C$ vs. the US$ in the medium term,” CIBC argues.

In line with this view,  CIBC targets USD/CAD at 1.30 into year-end.

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USD/CAD: Lower S/T On A BoC Oct Hike Before Higher M/T: Where To Target? – Citi

Citi Research expects the  CAD to stay supported in the short term  on the ground that BoC is likely to follow its rate hike in July with another hike in October.

“We expect one other 25 basis point increase in October  at the next MPR/press conference meeting and no additional increases in interest rates until 2H 2018. Moreover, since oil prices may rebound in 2H,  USD/CAD may test lower to  1.25 in short term,” Cti argues.

Beyond that, Citi expects to USD/CAD to rally back towards  1.30 into year-end  on the prospects for Trump to deliver tax reform and dollar-positive policies.

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