According to Richard Franulovich, Research Analyst at Westpac, USD/CAD is showing tentative signs of topping out near 1.2500 but with the BoC now on the sidelines with its datadependent posture, the better part of USD/CAD’s bigger decline in the last six months is mostly complete, for the time being.
“Recent BoC commentary suggests only a very slim chance of a hike when they meet Oct 25. That shouldn’t upset markets with just a 20% chance of a hike priced in for that meeting.”
“Further out, markets price in 50bp in hikes by mid-2018. That seems entirely reasonable – PM Trudeau’s 2016 fiscal stimulus is still washing through the economy, US prospects are firming amid very easy financial conditions while oil prices are holding near multi-month highs. USD/CAD should wash about in a 1.23-1.26 range into year’s end before potentially resuming its downtrend as US tax cut fever hits political snags and the BoC resumes rate hikes.”
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