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USD awaiting signal from Fed

Mon, Oct 5 2009, 14:49 GMT
by Economic and Strategy Team

National Bank of Canada


    • Our scenario calling for an appreciating USD is not unfounded. For one, labour productivity is taking giant steps forward in the United States while it is backpedalling in the euro zone.

    • The euro zone faces a double threat in that it must cope with negative productivity growth together with a loss of competitiveness resulting from the past appreciation of its currency. This is why we are reiterating our scenario calling for a depreciation of the euro over the coming quarters.

    • Two-year rates in Australia are up 200 basis points since the start of the year and the financial markets have already priced in imminent key rate hikes. Seeing the Australian dollar’s reaction in anticipation of monetary tightening, we stand all the more convinced of our scenario calling for the U.S. dollar to appreciate in future on the strength of higher bond yields.

    • The Federal Reserve will not necessarily reduce its balance sheet before raising interest rates. Higher rates in the United States would lend greater appeal to the greenback and allow it to firm up. In short, the USD awaits a signal from the bond market to make its move. When all this comes to be, we can expect the loonie to shed a few cents.

    Published on  Mon, Oct 5 2009, 14:52 GMT


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    This presentation may contain certain forward-looking statements about the 2009 Economic and Financial Outlook. Such statements are subject to risk and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change and economic conditions in Canada, North America or internationally. These and other factors should be considered carefully and readers should not rely unduly on National Bank of Canada’s forward-looking statements. This presentation may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank.

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