After a strong start to the quarter, the Canadian dollar is down 1% against the US dollar in the fourth quarter. Economists at the National Bank of Canada view the loonie as fundamentally undervalued and see scope for a rally over the coming months. They maintain their forecast calling for a USD/CAD rate of 1.20 in 2022.
CAD should do better in the lead up to BoC tightening
“The loonie looks to be undervalud by 10 cents. So, assuming that two-year interest rates differentials remain near current levels, we calculate that the current value of USD/CAD reflects WTI prices of only $42. That seems extreme unless of course global growth prospects deteriote markedly in the coming weeks due to the pandemic.”
“We see little reason to change our central bank’s mandate and recommend implementing the first of multiple rates hikes no latter than next March. On average, the loonie has been better bid in the lead-up to and in the early stages of BoC hiking cycles.”
“We remain comfortable with our current forecast calling for a USD/CAD rate of 1.20 in 2022.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.