USD/CAD: Oil still holding back CAD gains – CIBC

Analysts at CIBC see the USD/CAD pair to still be hovering around 1.41 by the end of next year, held back by Canada’s trade imbalance.

Key Quotes: 

“Oil’s modest recovery over the past couple of weeks has seen the loonie pick up some strength relative to the weakness we saw back in mid-March, when the pandemic first ensued. But oil prices are still sitting at low levels, and the trend back to risk assets looks vulnerable, so we don’t expect the C$ to hold onto that strength in the nearterm.”

“Markets could be pricing in slightly too much optimism as of right now. As the reality of depressed equity earnings, and the limitations on the recovery by the potential for a second wave set in, that would see a stall in oil’s rebound, allowing USD/CAD to reach 1.41 by June and ending Q3 at 1.43.”

“Looking ahead to the first half of 2021, we expect the C$ to strengthen alongside a more pronounced economic recovery, whose timing is likely dependent on the evolution of the virus and progress towards a vaccine. Even so, Canada’s weak trade record in the last cycle points to the need for a more competitive exchange rate in the longer-term, as the economy weans itself off of debtfinanced consumption and housing as sources of growth.”