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How Low Can The CAD Go? – Nomura

The Canadian dollar suffered with oil prices but didn’t really recover when they recovered. What’s next?

Here is the view from Nomura:

Here is their view, courtesy of eFXnews:

“The Canadian dollar has depreciated significantly in recent weeks. Most of the depreciation can be linked to the further decline in oil prices and, to a lesser extent, to an increased probability of a rate cut by the BoC.Using our valuation model for USD/CAD, we estimate that USD/CAD should be closer to 1.35, given current commodity prices and rates differential.

We also look at the impact of various scenarios on USD/CAD fair value and find that commodity prices would need to decline by another 20% for USD/CAD fair value to increase above 1.40.

oil prices USDCAD 2015 2016

This suggests that, unless commodity prices continue to decline, further increases in USD/CAD are likely to be limited at this point, unless the Canadian economy falters. The Canadian dollar has depreciated sharply in recent weeks, losing more than 4% against USD, as oil prices continue to decline leading to a deterioration in the terms of trade. Moreover, a string of weaker data and the lower commodity prices have increased the market pricing of the probability of a rate cut by the Bank of Canada.”

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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.