Analyst Kristoffer Lomholt at Danske Bank sees the Canadian currency appreciating further in the medium term.
“As widely expected, the Bank of Canada kept the policy rate unchanged at 0.5% at the September meeting. Surprisingly, the BoC twisted its language on the balance of risk for inflation from ‘roughly balanced’ (in July) to ‘tilted somewhat to the downside’. We – alongside markets – still expect BoC to leave rates unchanged for the next 12M”.
“Near-term a stronger USD and a setback in oil prices could send the cross temporarily higher. In the medium- to longer run we still expect the fundamentally undervalued ‘loonie’ to appreciate gradually on the back of valuation and a gradually higher oil price”.
“We lift our USD/CAD forecasts to 1.33 in 1M (from 1.32) and 1.31 in 3M (1.30). We leave the 6M and 12M projections unchanged”.