Weak economic reports from the U.S. over the past couple of weeks have altered expectations for the future course of monetary policy in that country.
At this writing, we continue to see the U.S. dollar index losing 6% over the course of the year.
The Canadian dollar has firmed against the greenback in recent weeks but the rise could prove to be ephemeral. In our view, a combination of factors will send the loonie retesting its recent low of about 1.18 to the USD in the coming weeks. The CAD will find its floor against the greenback when the Fed removes its tightening bias late this spring.
The Bank of Japan (BoJ) raised interest rates for the second time in seven months in February. How fast and how far the BoJ moves along the path of interest-rate normalization will depend on incoming economic reports and the exchange rate. For now, the most likely prospect is a very slow rise of Japanese interest rates.
