Further limited CAD recovery potential in the medium term – Commerzbank

The Loonie continues to find it difficult to hold its ground. Economists at Commerzbank see limited CAD recovery potential in the medium term.

CAD is likely to have a hard time for the time being against the EUR

“In view of the robust economy and active BoC, we see further limited CAD recovery potential against the USD in the medium term, supported by weakening USD strength. The interest rate differential could temprarily narrow somewhat if the Fed lowers its key rate from the end of 2023, as we expect, and the BoC does not follow suit (to the same extent).”

“The CAD is likely to have a hard time for the time being against the EUR, which has gained in attractiveness, for instance, due to the pricing out of an energy crisis and as a result of rising interest rate hike expectations. But rising interest rates in the euro area should increasingly be reflected in weaker economic indicators there as well. This should limit the CAD losses against the EUR.” 

“In the medium term, the Loonie should recover if the EUR trends weaker in 2024, as we expect.”