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Economists at the National Bank of Canada still see the CAD weakening modestly through March before rallying in Q2 on the back of QE tapering by the Bank of Canada and stronger commodity prices. The USD/CAD target for year-end 2021 remains at 1.20.

Key quotes

“CAD weakness is likely to be transient. GDP might disappoint in the coming months as a result of recent government-ordered shutdowns and short-term disruption of vaccine availability. However, it is important to note that the Canadian economy has not been hit harder than other economies by the pandemic and that programs to encourage people to stay in the workforce have so far worked reasonably well.”

“We find it hard to justify the Bank’s current pace of quantitative easing. The BoC’s QE program is much more aggressive as a share of GDP than that of the Federal Reserve. Concern for financial stability would argue for QE tapering in the coming months (April or May), provided of course that the global economy continues to recover. Such a move would provide some support for an appreciation of the CAD.”