USD/CAD Outlook:
The USD/CAD rate is currently below its recent average and near recent lows, suggesting a slightly weaker but likely sideways movement. Recent pressures on the CAD from declining oil prices contribute to this outlook.
Key drivers:
• Rate gap: The U.S. Federal Reserve's interest rate policies are less aggressive compared to the Bank of Canada, which has taken a more cautious approach amidst economic slowdown.
• Risk/commodities: Soft oil prices are weighing down the CAD, as the currency is heavily linked to Canada’s oil exports. Reduced oil revenues typically lead to lower CAD value.
• One macro factor: Recent data showed U.S. inflation decreased unexpectedly, which has tempered expectations for the Federal Reserve’s interest rate hikes, affecting USD strength.
Range:
The USD/CAD is expected to hold within its recent trading range, without significant movement towards extremes for now.
What could change it:
• Upside risk: A significant recovery in oil prices could strengthen the CAD and allow it to recover against the USD.
• Downside risk: Further weakening of U.S. economic indicators might push the CAD lower, increasing the USD/CAD rate unexpectedly.
