CAD to underperform alongside USD – MUFG
|USD/CAD has declined to close to fair value. Economists at MUFG Bank analyze the pair’s outlook.
Fed-BoC alignment set to continue in 2024
2002-2005 & 2010-2013 were periods of tighter BoC policy relative to the Fed – this is unlikely to emerge in 2024. Market expectations are very tightly aligned for the Fed and the BoC to move in tandem in 2024 which seems likely to us.
Increased equity market volatility in 2024 as US growth slows will have implications for CAD given CAD/S&P correlation. If equity market volatility picks up next year that could see CAD suffer more than other G10 currencies especially if source of volatility is US-related.
CAD undervaluation has been eliminated over recent months. USD/CAD has reverted toward fair value limiting potential scope for outperformance going forward.
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