CAD: Loonie can’t forever fly with the flock; where to target? - CIBC

eFXdata reports that CIBC Research discusses USD/CAD outlook and targets the pair at 1.39 in Q3.

"Much of the surprising rebound in the Canadian dollar since late March was tied to the loonie flying with the flock of other majors’ gains on the greenback, with a tailwind from a turn in crude prices. We’ve reduced our targets for C$ weakness ahead due to that recovery in oil. However, we do not believe the Canadian dollar will be able to sustain that run, and will see 1.40 again at some point during this recovery. 

Unlike the Eurozone or Japan, Canada entered this recession with a weak current account and trade balance, and the prior expansion’s lackluster growth in real exports suggests its overvalued on trade fundamentals. Second, the C$ rallied when the market oddly priced in an earlier return to central bank tightening than elsewhere in the G-7.  If anything, there’s a risk that smaller countries like Canada won’t be able to muscle their way to the front of the vaccine lineup," CIBC notes. 

"In addition, the country’s overweight in energy points to a weaker 2020 starting point versus the US. Look for the Bank of Canada to pound home the message the output gap will remain wide over its full forecast horizon, implying a long wait for any move off near-zero rates, and helping to take some luster off the currency," CIBC adds.