USD/CAD to end the year at 1.33 – CIBC

The loonie holds ground for now, but the Bank of Canada (BoC) dovishness suggests a softening in 2021-22, according to Katherine Judge and Avery Shenfeld from CIBC Capital Markets. They forecast the USD/CAD pair trading at 1.33 by year-end.

Key quotes

“Broad USD moves continue to dictate momentum in CAD, with the latest trend towards a stronger USD amidst global second waves of the virus leaving CAD a touch softer. The weakness in CAD comes despite a 9% climb in crude since early September, with the level remaining far below pre-crisis highs. The upward trajectory in oil is unlikely to be sustained given the prevalence of second waves of the virus globally.” 

“Moves in the greenback will continue to dominate CAD momentum for the remainder of the year. On that score, we see scope for the USD to give up some of its safe-haven bid by the end of 2020 after a period of election-induced volatility. That could leave CAD slightly stronger to end the year, with USD/CAD at 1.33.” 

“In 2021, trade fundamentals should come into focus. A long run of red ink on trade suggests CAD is clearly overvalued, especially relative to trading partners apart from the US. The BoC has room to nudge the C$ weaker in 2021-22 by correcting the market’s current impression that it will hike ahead of the Fed.”