Bias: bearish-to-range-bound, as the CAD is below the 90-day average and in the lower half of the 3-month range.
Key drivers:
- Rate gap: The Bank of Canada’s recent rate cut to 2.25% contrasts with Chile's Central Bank reducing rates to 4.5%, making the Canadian Dollar less attractive compared to the Chilean Peso.
- Risk/commodities: Oil prices are currently above their 3-month average, which could help stabilize the CAD if these levels are maintained, given Canada's reliance on oil exports.
- Inflation trends: Chile has experienced a drop in inflation to 3.5%, allowing for rate cuts, whereas Canadian unemployment has risen, adding pressure to the loonie.
Range: The CAD/CLP is likely to drift within its recent range, with potential for slight fluctuations based on commodity price movements.
What could change it:
- Upside risk: A significant rebound in oil prices could strengthen the CAD.
- Downside risk: Continued deterioration in Canadian economic data, especially concerning employment, could further weaken the CAD.