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The Canadian dollar managed to improve its position recently, with USD/CAD retreating from the highs that got it close to 1.30. The rising oil prices following the crisis in Yemen helped, but did not last too long.

So what’s next for the loonie? Here are views from  Nomura and Morgan Stanley:

Here is their view, courtesy of eFXnews:

BoC Next Move: 4 Issues To Focus On – Nomura

The Bank of Canada (BOC) cut its policy rate by 25bp at its January meeting and Nomura believes it will again cut in coming months, but the timing depends on incoming data.

Nomura outlines 4 key aspect to focus on:

1) Oil prices and the rational for using Brent oil price, rather than WTI or WCS.

2) Household debt levels, as it continues to reach new highs. But lower interest rates reduce the cost of servicing the debt. While this debt situation is a big risk to the economy, especially if unemployment were to increase meaningfully, we believe it is unlikely to prevent a further cut.

3) The current underperformance of non-energy exports is source of concern and is likely to persist because of a lack of competitiveness in the sector and a weakening of the links between Us growth and Canadian exports.

4) Signs of contagion from the oil sector and regions are mixed. While unemployment has mainly increased in oil-producing regions, it seems that weakness in spending has been more generalized.

USD/CAD: Watching Oil; Look For Larger Dips To Buy – Morgan Stanley

CAD is gaining some support from stronger oil prices, but Morgan Stanley believes that this could be limited over the longer term.

“The REER still requires adjustment in order to make the economy more competitive. While the dependence on the oil sector is lower than in Norway, CAD could still get hit from a weaker banking sector affected by loans made to the oil sector,” MS argues.

“We do note that Canada should benefit from growth in the US economy, but look for larger dips to buy USDCAD,” MS advises.

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