USD/CAD: Risks tilted to the downside on solid growth and aggressive monetary tightening – Wells Fargo
06.06.2022, 16:34

USD/CAD: Risks tilted to the downside on solid growth and aggressive monetary tightening – Wells Fargo

Analysts at Wells Fargo expect a more extended series of 50 basis points interest rate increases from the Bank of Canada (BoC) to be delivered at the July, September and October meeting. They see risks tilted towards a stronger Canadian dollar than their existing USD/CAD exchange rate target of 1.2500.

Key Quotes: 

“The solid growth and rapid inflation trends prompted a second straight 50 bps rate hike from the Bank of Canada (BoC) at its June meeting, along with a forceful statement in which the central bank said it is willing to act more forcefully if needed.”

“We now expect a more extended series of 50 bps rate increases to be delivered at the July, September and October announcements. We see the BoC's policy rate ending 2022 at 3.25%, and peaking at 3.75% in 2023.”

“The solid Canadian growth outlook and aggressive central bank tightening means the outlook remains, in our view, for a resilient Canadian dollar. Indeed, given recent gains the Canadian dollar is already approaching our medium-term USD/CAD exchange rate target of CAD1.2500. We clearly see the risks as tilted towards further Canadian dollar gains over time, perhaps to the lower end of a CAD1.2000-1.2500 range.”
 

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