USD/CAD: Loonie to show renewed weakness as the year progresses – Wells Fargo

According to analysts at Wells Fargo, there is no imminent rate hike from the Bank of Canada, taking into account Wednesday’s higher than expected inflation numbers. They see weakness ahead for the Canadian dollar versus the greenback. 

Key Quotes: 

“Even as inflation continues to move higher, with the December CPI edging up to 4.7% year-over-year and the average of the core inflation measures firming to 2.9%, we do not expect an imminent rate increase at the Bank of Canada January monetary policy announcement.”

“Our outlook for a 25 bps rate hike by April is more conservative than current market pricing, which anticipates 52 bps of rate increase during the next three months.”

“More broadly we forecast 75 bps of rate increase from the Bank of Canada over the next 12 months, compared to the 152 bps of rate increase anticipated by market participants. Thus even though there are some positive factors for the Canadian dollar, including a recent rise in oil prices, considering the aggressive market expectations for Bank of Canada policy, and the prospect of relatively rapid tightening (at least by international standards) from the Federal Reserve in 2022, we still expect the Canadian dollar to show renewed weakness versus the greenback as the year progresses.”