The Canadian currency fell from 1.2079 to 1.2388 against the US dollar in June. While the US dollar strengthened across the board, the CAD dropped less than most other G10 currencies, demonstrating its relative durability. MUFG Bank experts expect CAD gains to moderate in the near future.
“The Bank of Canada kept its monetary policy constant in June, as predicted, but by the July meeting, we should see more indications of the economy rebounding from the April and May downturn.”
“Job losses over this time period, as well as a worse GDP report in Q1, have been downplayed by BoC officials, implying no change in the path toward the first rate hike. The July meeting will also include forecast updates, which will most likely support a further lowering of QE purchases from the current CAD3 billion per week to CAD2 billion per week.”
“Despite the FOMC-driven increase in short-term rates in the US, the US-CA 2yr swap spread shifted in favor of CAD strength in June, explaining the currency’s greater durability in the face of USD appreciation. However, we maintain a slightly higher CAD profile, with prudence advised.”
“Our crude oil estimates imply that we have reached a peak and that prices will fall in Q3, albeit modestly, while the Bank of Canada is assessing its policy mandate for renewal this year on a 5-year cycle. The result could be more flexibility on inflation overshoot, which could temper rate hike expectations now priced in the market.”/n
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