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The Canadian dollar has firmed in the past month, riding a backdrop of upside economic surprises and stronger commodity prices, explained analysts at the National Bank of Canada. They think investors should tread carefully in the run-up to the US presidential election. They kept its target of USD/CAD at 1.38 in the short-term. 

Key Quotes:

“The Canadian dollar ended the month of July well below its 200-day moving average against the USD, riding a backdrop of upside economic surprises and stronger commodity prices. The improving global economic backdrop must still be interpreted with caution. Upside economic surprises have been concentrated in the advanced economies. In emerging markets – 60% of global GDP – economic indicators continue to disappoint. Given this poor showing, we see limited upside for commodity prices over the next three months.”

“Keep in mind that demand for oil is also likely to be dampened by the resurgence of new Covid-19 cases in many countries. Our target for WTI over the coming months is $37 a barrel, down from $42.”

“The prospect of a drop in the price of WTI at a time when Western Canadian Select is trading at a widening discount to WTI makes us more cautious about the outlook for the CAD, especially considering Washington’s renewed protectionism.”

“We maintain our three-month target of C$1.38 to the USD.”