USD/CAD with room to decline near term – NBF

Over the near term, the Canadian dollar has room to strengthen against the US Dollar as interest rate spreads become more favorable, courtesy of the Bank of Canada standing pat and the Federal Reserve delivering another rate cut before year-end, explained Stéfane Marion and Krishen Rangasamy, analysts at National Bank of Canada.  

Key Quotes:  

“Even the Canadian dollar could not handle the USD’s ascent in July, the currency losing roughly 0.5% against the greenback. Unfavourable Canada-U.S. differentials hurt the loonie during the month while oil prices did not improve enough to provide an offset.”

“So, where does the loonie go from here? Over the near term, the loonie has room to strengthen against the USD as interest rate spreads become more favourable courtesy of the BoC standing pat and the Fed delivering another rate cut before year-end. The economic turnaround, which has already encouraged speculators to
reverse their net short positions on the currency, should also provide a boost to the Canadian dollar.”

“Higher oil prices, courtesy of tight supply stemming from U.S. sanctions on two major OPEC producers, could also provide an extra boost to the loonie. As such, we are leaving unchanged our end-of-year target of 1.30 for USDCAD.”