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According to analysts at CIBC Research, trade uncertainty continues to cloud the outlook for the Canadian dollar. They keep a target for USD/CAD at 1.34 by the end of the year, rebounding to the roughly 1.30 level in 2019.

Key Quotes:  

“While the greenback is now overvalued versus several major currencies, CAD isn’t one of them; witness Canada’s generally balanced position on overall trade with the US, and its persistent trade and current account deficit overall.”

“Markets have become more aggressive in pricing in Bank of Canada hikes after a surge in growth in Q2, but that comes after three soft quarters. Look for the pace of growth to settle back over the rest of the year as consumption slows, housing market activity remains constrained and trade uncertainties delay capital spending plans.”

“With the Fed hiking by 125 bps over the coming six quarters, and the combination of trade headwinds and an indebted household sector constraining the Bank of Canada to only another 50 bps, we see dollar-Canada moving sideways in a 1.28 to 1.35 range through 2019, despite the overall weakening trend for the USD.”

“The weakest Canadian dollar levels should come as the threat (but not the actual imposition) of auto tariff heats up, and a return to 1.28 on signs of progress on NAFTA talks next year.”