National Bank of Canada analysts raised slightly near-term USD/CAD forecasts to reflect current risk aversion. They expect an appreciation of the Canadian dollar by mid-2019 which would take the pair closer to 1.27 if crude oil prices rebound.
Key Quotes:
“While the Canadian dollar is set for an annual decline against the USD in 2018, the depreciation could have been much more brutal. Western Canada Select (WCS) oil price and the 2-year interest rate spread with the U.S., both major drivers of the Canadian dollar, are now at January 2016 levels. And yet, USDCAD is trading near 1.32, about 10 cents below levels of early 2016.”
“In addition to benefiting from a softer USD in 2019, the loonie could also find support from better WCS-WTI spreads and higher oil prices (we expect WTI to hit $65/barrel by end-of-Q1). While we have raised slightly our near-term USDCAD forecasts to reflect current risk aversion, we continue to expect an appreciation by mid2019 which would take the cross closer to 1.27. Our forecasted trading range for USDCAD over the next 12 months is still 1.25-1.35.”
“While the central bank did not entirely close the door to a January rate hike, chances of such a hike being delivered then have significantly diminished. In other words, our forecast of a loonie rally by mid-2019 would be overly optimistic should oil prices not bounce back the way we are currently expecting.”
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