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The USD/CAD pair, which was last seen hovering near the 1.2765-70 region, is expected to end the year around 1.25, according to economists at the Bank of Montreal. 

Key quotes

“Canada’s economy is projected to grow 5.0% in 2021, the best year since 2000 and somewhat above the consensus view. After contracting about 5.5% in 2020, GDP should retrace its losses by year-end.”

“With permanent job losses accounting for a third of the 1.6 million unemployed in November, the jobless rate will decline slowly, likely ending the year at a still-high 7.0%. As a result, the Bank of Canada is expected to keep policy rates near zero, while continuing to use forward guidance and bond purchases to limit upward pressure on long-term rates. We expect the 10-year bond yield to rise about 40 basis points to 1.1% by year-end.”

“The Canadian dollar is expected to strengthen modestly to $1.25 (or 80 cents US) by late 2021. This is near purchasing power parity, limiting its impact on the economic recovery though keeping the trade deficit large. The loonie should benefit from firmer resource prices (WTI oil is expected to rise modestly to around $50 by year-end) as global demand improves and from further weakness in the trade-weighted greenback (down 5% in 2020) as safe-haven demand fades.”