FXStreet notes that the loonie received a lift alongside other majors versus the greenback in the past month helped by firmer crude prices but the CAD has underperformed others like the euro and the rally is now running on empty. Katherine Judge and Avery Shenfeld from CIBC Capital Markets see USD/CAD ending the third quarter at 1.37.
“The strength in CAD appears set to reverse in short order as relatively weak fundamentals are revealed and the global economic recovery stalls, giving a safe haven bid to the USD. We see USD/CAD ending the third quarter at 1.37.”
“Upwards momentum in commodity prices seems poised to fade as the recovery in the US slows and second waves of the virus in other major regions challenge demand for Canada’s resource sector.”
“Canadian exporters outside of the energy sector were already struggling with an uncompetitive exchange rate heading into this crisis, something that worked to amplify the current account and trade deficits, and clearly requires a weaker loonie."
“Canadian households entered into this crisis in a weak position with elevated levels of debt, leaving population growth as the main driver behind consumption. Canada’s recovery is expected to be protracted relative to the US as a result, another ingredient for C$ weakness through the next year.”
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