USD/CAD to nosedive below the 1.20 mark by year-end – ING

A second QE taper announcement and the prospect of a 2022 rate hike suggest Canada is at the front of the policy "normalisation" race. These prospects are set to assist CAD in the medium-term, according to economists at ING.

See: USD/CAD to move downward to 1.2365 as BoC delivers hawkish surprise – TDS

Canada is speeding up vaccinations

“The Canadian dollar rallied after the meeting thanks to the more hawkish 2022 forward guidance and a set of upbeat economic forecasts, while the C$1 B worth of tapering was largely expected. In the short run, however, the loonie may struggle to emerge from the recent soft momentum, as the covid emergency in Canada is forcing some re-rating of domestic growth expectations.”

“Oil's underperformance may extend to the second half of the week as President Biden's climate summit tomorrow may signal a stronger commitment to reducing emissions. All in all, we could see CAD reversing some of Wednesday's gains by the end of the week.”

“Assuming that the current restrictions prove effective in curbing the contagion in Canada – the country has significantly increased the pace of vaccinations – and given that our commodities team believes oil prices will stay supportive in the remainder of the year, CAD may be left without any meaningful short-term dampening factor.”

“An improved rate profile, thanks to markets frontloading a rate hike in 2022 and further scaling back of QE this year, all point to further strength in the loonie. In line with our bearish USD profile, we expect USD/CAD to touch 1.20 – and possibly move below those levels – by the end of 2021.”