The Canadian dollar trades in a relatively wide range and it remains vulnerable.
Here are two risk sources according to Credit Agricole:
Here is their view, courtesy of eFXnews:
The challenging backdrop for CAD should persist in the final quarter of the year. We highlight two key factors that underpin this view.
First is the relative monetary policy outlook between the Fed and the BoC. Our estimates show that the relative two -year interest rate differential has been the key driver behind USD/CAD over the past six months. Specifically, a 10bp rise in the spread has coincided with a 15 cent rise in USD/CAD. Moving forward we expect the BoC to cut rates at the October meeting while our US economists expect the Fed hike at the October meeting. This divergence in policy should widen the interest rate differential to levels not seen since the mid -2000s. We also note that the Canadian economy has yet to respond to the 20% drop in Canada’s REER over the past three years. In our view this reflects structural rather than cyclical economic issues.
Second is the outlook for oil. We expect a lower -for -longer oil outlook, which is likely to weigh on Canadian capex growth. Indeed, excess supply and a stronger USD pose downside risks to oil prices into next year, adding fresh headwinds to the outlook for CAD.
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