The Canadian dollar is likely to be hurt more by intensifying global growth fears and from negative spill-over risks from higher rates, according to analysts at MUFG Bank. They see the USD/CAD moving higher in the short-term.
Key Quotes:
“CAD will weaken further in the near-term on the back of intensifying fears over a sharper slowdown in global growth. After testing resistance at the 1.3000-level, the pair finally broke decisively higher hitting a high of 1.3224 over the past week. The bullish price action supports our trade idea and points to further upside ahead.”
“The CAD weakened sharply even after the BoC hiked rates by a larger 100bps and signalled further hikes this year. Higher yields alone are not sufficient to prevent the CAD from weakening against the USD in the current environment. Support from higher yields has been more than offset by intensifying fears over global growth which has resulted in the price of Brent crude oil dropping sharply back below USD100/barrel.”
“There are building concerns that the BoC could be overdoing it in hiking rates so quickly so that it increases the risk of sharper domestic slowdown as well. The BoC already noted that the housing market activity is clearly slowing. We still expect the Fed to keep raising rates for longer than the BoC given Canada’s economy should prove sensitive to higher rates in our view.”
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