USD/CAD to tick down towards 1.30 - BMO

FXStreet reports that economists at the Bank of Montreal (BMO) stick to their forecast of 4.0% growth for the US economy in 2021 while lower the Canadian GDP growth to 5.5% in the next year. Meanwhile, the USD/CAD is forecast to drop towards 1.30. 

“Assuming President-elect Joe Biden is inaugurated on January 20 and the Republicans hold onto the Senate, we are unlikely to change our US economic call of 4.0% growth in 2021. For Canada, a Biden win could mean calmer trade relations, but possibly no Keystone XL pipeline, hurting Alberta.”

“Beyond the election, the economy's biggest threat is the coronavirus, with caseloads surging to record levels in both countries. A ray of light is that several front-running vaccines might be available by the turn of the year. Depending on their effectiveness, safety and speed of rollout, they could pave the way back to normality. ”

“A second wave of the virus is now rolling across Canada, resulting in new restrictions on indoor dining, bars and personal-care services in several provinces. Consequently, we lowered our Q4 growth forecast to 2.3% and our 2021 call to 5.5% (from the long-standing 6.0%).”

“With fewer temporary layoffs on deck, jobless rates will fall more slowly in the coming years. As a result, neither the Fed nor the Bank of Canada is expected to raise policy rates until 2024. The Canadian dollar is expected to strengthen modestly toward $1.30 by late next year, benefiting from firmer oil and commodity prices as global demand improves.”