USD/CAD: End-of-year target of 1.30 unchanged, but...  - NBF

Analysts at the National Bank of Canada explained that a further deterioration of the global economy, and corresponding oil price slump, represent the biggest downside risk for the loonie. But if, as they expect, policymakers in the US and China realize the cost of their dangerous policies and step back from the brink, investor sentiment about global growth will improve and may then be able to focus on positive developments in Canada. 

Key Quotes: 

“The Canadian economy is on the mend as evidenced by the strong handoff from March which signals an acceleration of growth in Q2. That, coupled with the removal of tariffs by the U.S. on steel and aluminum imports from Canada, should have given a lift to the Canadian dollar which instead continues to struggle amid investor concerns about global growth. 

“Canadian exporters also stand to benefit from stronger U.S. imports in the second quarter after the Q1 purge stateside. If, as we expect, Q2 growth ends up being better than the 1.3% print the Bank of Canada is currently estimating, that would likely get markets to reduce any remaining expectations of rate cuts this year, boosting the Canadian dollar in the process.”

“While we’ve left unchanged our end-of-year target of 1.30 for USDCAD, expecting a U.S.-China trade deal to breathe new life into oil prices and hence the Canadian currency, we may have to revise that forecast if June’s G-20 meeting fails to alter the current toxic tone in trade negotiations between the U.S. and its trade partners.”