The Canadian dollar has enjoyed a lot of strength following Brexit in comparison to many of its peers. This may change:
Here is their view, courtesy of eFXnews:
The CAD is the second strongest G10 currency after the JPY since the start of the year but we believe the tide has now turned. The recovery in oil prices appeared to be running out of steam even before the UK referendum amid persistent crude oversupply conditions. With the Brexit result adding to global growth concerns, we expect oil prices to become an increasingly negative factor for the CAD. We don’t believe the BoC will rush to respond to recent market instability with immediate easing. However, the central bank’s stance, which relies heavily on the ability of fiscal spending to lift growth, is looking quite vulnerable. Non-oil export growth has slowed to its weakest pace in 12 months and faces further challenges from a stronger CAD and waning global demand, while an overleveraged Canadian consumer cannot sustain growth momentum forever. Our base case is that the BoC remains on hold but the risk has to be for more easing.
Ultimately, we believe USD/CAD is likely to move higher under a broad range of risk scenarios in H2. Should Brexit fallout persist, high-beta G10 currencies should be increasingly vulnerable. Furthermore, given the overwhelming importance of the US markets for Canadian exports, CAD will draw little encouragement from the protectionist rhetoric surrounding the US Presidential elections (Mr Trump called NAFTA a “disasterâ€). When and if risk sentiment recovers, the Fed will be in a position to tighten well ahead of the BoC, pushing US-Canada rate differentials in the USD’s favour.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.
