The Canadian dollar made quite an amazing turnaround, with a move worth over 1000 pips. Also the pound is a bit wild. What’s next? The team at CIBC examines:
Here is their view, courtesy of eFXnews:
Loonie’s Change in Flight Path Too Dramatic. It’s been a wild start to the year for the C$. Having fallen below 70 cents US, it’s now recovered all of that ground even though oil prices are still lower than they were at the start of the year and markets are pricing in a greater probability of a BoC cut.
So what’s changed? Largely increased concern about the US economy that has seen markets completely price out another Fed hike this year. We think that talk of a US recession is a massive exaggeration, particularly with job gains still holding at a very strong pace. Once the US$ recovers some strength, the USDCAD could go back up to the low 1.40’s, although we don’t expect to see another spike above 1.45.
“Brexit†No “Grexitâ€â€¦Yet. Sterling has been a significant underperformer so far this year, held back further this week by the lone BoE dissenter Ian McCafferty dropping his call for an immediate hike. Given its large current account deficit, sterling has been vulnerable to concerns about the UK’s place in the EU. Yet,these fears may worsen before they get better. Internet searches for Brexit show that it is no Grexit, at least yet.
Meanwhile the opinion polls have room to narrow again as a referendum gets closer. But as the search history of Grexit demonstrate, such concerns are quickly forgotten after the event. However, with no set date for a referendum confirmed, and plenty of time to go until the June or September possibilities, the rocky ride for sterling could persist for a while.
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