Canadian dollar to underperform next year – JP Morgan

The JP Morgan analysts are out with their latest forecast on the USD/CAD pair, predicting a weaker Canadian dollar in the coming year.

Key Quotes:

“The foundation on which CAD outperformed this past year is liable to dissipate into 2020.

This is due largely to the fact that the foremost drivers of 2019 cyclical outperformance in Canada were temporary phenomena.

Canada will be more vulnerable to a local growth slowdown in 2020, to the detriment of CAD, particularly as we expect a [Bank of Canada] cut in January.

The main drag on the Loonie is softer global growth and dissipating temporary local factors.

Despite our expectations that Canada loses its cyclical exceptionalism and CAD unwinds some of its outperformance, the resulting currency weakness will be only modest, rather than large and broad.

First and foremost, CAD should retain a decent yield buffer, as we are only calling for a reversion to trend growth (albeit the lower end of potential), rather than a sharper, sustained sub-trend rate or even contraction.”