USD/CAD to advance nicely towards 1.30 by end-2022 – CIBC

The loonie hasn’t gained any traction of late, despite the momentum seen in the price of oil and natural gas. Higher oil prices have been offset by Fed hawkishness, and those opposing forces should leave CAD steady in the near-term before depreciating in 2022, according to economists at CIBC Capital Markets.

Push and pull on the loonie

“A growing consensus for a sharper Federal Reserve QE tapering and subsequent rate hikes have provided an offset to the commodity price enthusiasm for the CAD. Both of those forces should persist in the coming months, seeing USD/CAD end the year at today's level even as the Fed announces its tapering plan, likely in November.”

“While the BoC is likely to further taper its QE program in October, it will use that same meeting to push back its forecast for achieving a zero output gap into Q4 of 2022, and markets will begin to price in a lighter path for its policy rate as a result. Shortly thereafter, the start of a quick Fed tapering path will have investors upping medium-term projections for the fed funds rate, suggesting a weaker CAD in 2022.”

“Canada’s current account surplus is set to swing back into deficit as international travel returns and commodity prices level off, adding pressure to the loonie.”

“Look for USD/CAD to end 2022 at 1.30, with a continued depreciation likely in 2023.”