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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