USD/CAD: Oil prices and border reopening plans to fuel the loonie – Credit Suisse

Economists at Credit Suisse remain constructive on CAD with a 1.1920 USD/CAD target ahead of today’s Bank of Canada rate decision. They expect no further tapering announcements from the BoC today and no changes in forward guidance. Meanwhile, news of plans to drop quarantine requirements for inbound travelers represents an upside surprise relative to their expectations.

See – Bank of Canada Preview: Forecasts from nine major banks, action expected in July

Canada is now leading in the pace of COVID-19 vaccinations

“We suspect that the weaker-than-expected May employment data, against the backdrop of a market well-positioned for CAD strength, might have been the culprit behind the divergence between the loonie and energy prices. The slight pullback in BoC tightening expectations over the coming 3 years from a 151bp to 138bp (as implied by forward OIS markets) is somewhat consistent with this view.”

“Ahead of today’s BoC interest rate decision, our constructive bias on CAD remains intact, and we see limited risks around today’s rate decision. We do not anticipate any new tapering announcements today, and do not see a high risk of a downgrade in forward guidance, as inflation, growth and vaccination data remain largely in line with the April MPR assumptions, despite the recent weak employment data.” 

“The rapid pace of Covid vaccinations and the recently announced reopening plans across Canada suggest that the BoC’s call for an H2 rebound in employment remains valid.” 

“Yesterday’s news about Canada’s plans to drop quarantine requirements for inbound travelers represents positive surprises relative to our expectations and to the BoC’s outlook: we do not expect this to be mentioned directly at today’s meeting, but we will be alert to additional details as a catalyst for further CAD strength.”