Canada is very vulnerable to the twin oil and coronavirus shock given great energy export dependence and leverage to the US. USD/CAD is up 5.8% year to date and looking very over-extended but with reasons to see a break above 1.40, economists at Westpac Institutional Bank apprise.
Key quotes
“A break of 1.40+ is still on the cards in the coming days as markets come to grips with the damage to Canada’s economy from the twin COVID-19 and oil shocks.”
“There’s a case for further meaningful downside in CAD merely to catch up to the substantial decline in energy prices/terms of trade.”
“Market pricing for the BoC is surprisingly not yet at their zero-bound; -75bp discounted by Oct 2020, putting their overnight rate at 0.50% vs 0.25% lows reached in 2009/10.”
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