USD/CAD: Loonie to start 2021 on a strong commodity note, fade as the US economy recovers

FXStreet Team FXStreet

Pandemic risk premium extraction dominated USD/CAD price trading in 2020 but ended in July at 1.3400. Weak US employment data in November and December along with the inability of the US Congress to pass a second stimulus bill to that point were the deciding factors in the drop of the USD/CAD through the two-year support at 1.2960 in early December. Joseph Trevisani, an Analyst at FXStreet, justifies the Canadian dollar strength but forecasts a USD/CAD recovery towards 1.3400 in the second half of the next year.

Key quotes

“Continued commodity price strength, equivocal US economic statistics and Fed rate repression will keep the USD/CAD weak during the first half of 2021.”

“Despite the pressure on the USD/CAD in the first half of the year its decline will be relatively shallow due to the evolving and limiting circumstances of the second-half recovery.”

“If the pandemic is defeated by the end of the second quarter, a notable if, then the second half of the year could be a party. The combination of psychological and practical relief from the pandemic, returning jobs and wages could give two or even three-quarters of 5% annualized growth. Were that or something akin to happen, the expansion would drive US yields higher, regardless of the Fed, though restrained by their intervention and US statistics would reflect the expansion. The USD/CAD would accrue the benefits to 1.3400.”

Author

FXStreet Team

FXStreet

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