USDCAD: It's Still a Growth Story, The Redux.
May 2021: USDCAD FX Update
Including a USDCAD Forecast: It’s Still a Growth Story, The Redux
18 May 2021 1 min read
As the global economy continues to bounce back, Christopher Fricke, managing director of foreign exchange sales with ATB’s Financial Markets Group offers insight on the market trends and fluctuations we have experienced in recent weeks. Chris shares his thoughts on where we go from here followed by a question and answer period moderated by Janek Guminski, managing director and head of FX sales.
This webinar includes:
- A review of fundamental and technical drivers of valuation in FX markets;
- Correlation analysis for the Loonie and other asset classes;
- USDCAD forecast; and
- Hedging strategies for the corporate treasurer.
USDCAD Forecast Report Summary
- The thesis of a strong global cyclical growth phase has underpinned our outlook for USDCAD over the past year and
that theme has largely played out: Commodity prices are stronger, fiscal stimulus has increased, and vaccine rollouts
have (mostly) surprised to the upside.
- This has led to growth projections being upgraded significantly from earlier this year and no more so than from the
Bank of Canada who became the first major G10 central bank to adopt a hawkish stance at their recent April policy
- In contrast, the Fed has remained on the sidelines which has led to CAD rallying to three-year highs. Given CAD’s
leverage to commodity prices, high positive correlation to global growth, and strong housing market we expect the
BoC to remain under pressure to maintain a vigilant outlook on interest rates relative to other major central banks in
the coming years.
- Furthermore, the USD remains under longer-term structural pressure from record trade and budget deficits - deficits
that imply a weaker USD as the US imports more than it exports, and spends more than it brings in.
- As a result, we continue to see CAD appreciation as the most probable outcome and move our USDCAD targets
lower with a 2021 year-end target of 1.1700.
- Key risks are US growth outperformance pulling the Fed off the sidelines and pushing US rates higher, and a quicker than anticipated supply response across commodity markets particularly in copper and oil.