Moderate CAD recovery potential against the USD in the medium term – Commerzbank

Interest rate expectations and the market's optimism about the US economy are key drivers of the upward trend in USD/CAD since July. Economists at Commerzbank analyze the pair’s outlook.

CAD should benefit if the BoC keeps its key rate at a higher level for longer and cuts it less than the Fed

We believe that the optimism about the economy that has been priced into the USD is overdone. From the fall, we expect clear signs of an economic slowdown in the US as well. The CAD should benefit from this against the USD.

We continue to see moderate CAD recovery potential against the USD in the medium term. The CAD should benefit if, as we expect, the BoC keeps its key rate at a higher level for longer and cuts it less than the Fed. This would reduce the interest rate differential between the Fed and the BoC and it could turn positive in the medium term.

EUR/CAD should reflect the interim EUR strength we expect. The key factor here is our expectation that the ECB will not cut interest rates, contrary to current market expectations – a hawkish signal from which the Euro should benefit, at least in the short term.

Source: Commerzbank Research