• As the U.S. economy tones up, the European currency should continue to depreciate for a simple reason: The trade-weighted euro is still by far the most over-valued currency relative to its purchasing power parity.
  • It is hardly likely that the rate at which the Hong Kong dollar (HKD) is presently fixed will be re-evaluated in the very short term. In the mid-term, however, the financial markets appear to us overly complacent in giving the HKD 0% probability of appreciation over 24 months. The rate at which the exchange rate is presently fixed is not compatible with keeping inflation on a short leash, especially in the light of ballooning money and credit aggregates.
  • U.S. Treasury 2-year rates have made several false starts recently and, to be sure, do not suggest an imminent tightening of monetary policy south of the border.
  • In the face of the big-V recovery of the Canadian labour market, we harbour certain reservations regarding the capacity of the Canadian output gap to properly reflect the current state of inflation pressures, especially in the service sector.
  • If we are reading the cards right, we will soon witness a desynchronization of the North American monetary policies in favour of Canada. As the BoC should come out of the blocks before the Fed, we see the loonie climbing to 0.97 USD in the short term but then closing 2010 near 0.92 USD.