USD/CAD: Upside Risks To Base Case Have Increased; May Overshoot Above 1.35 – BofA

With the global economy showing signs of strain, what is the outlook for the Canadian dollar?

Here is their view, courtesy of eFXdata:

Bank of America Global Research discusses USD/CAD outlook and sees a scope for overshooting above 1.35 over the coming months.

“Back in January, we outlined  three  scenarios  for USD/CAD this  year.  Our baseline  view  has been  for the pair to top out around 1.33 and initiate a trend toward 1.30 later  in 2020. This scenario  was  predicated on global economic recoveries  alongside a short and shallow soft patch in Canada, allowing the BoC to remain on hold.  

Upside risks to this forecast  have  increased,  and global macro  conditions are becoming increasingly supportive of our pessimistic scenario, under which the exchange rises to 1.35 with risk of overshoot to the high  1.30s,” BofA notes.

“Why?  Prospects for domestic and international growth have been severely undermined by  the  coronavirus, and recession risks have increased. Additionally, poor Canadian terms of trade have further deteriorated as a result of sharply weaker commodity prices,  in particular WTI oil in the $40/barrel range. We think that these developments, if sustained, may lead to persistent US vs. Canada economic divergence, supporting CAD rates outperformance and an additional leg higher in USD/CAD,” BofA adds.  

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