CAD likely to appreciate moderately against USD towards 1.24 by 2016-end

The resurrection of possibility of US Federal Reserve hiking the interest rates in June has considerably influenced the USD/CAD pair. Relatively stable data in the US and less dovish rhetoric from the members of the FOMC, including the US Fed Chair Janet Yellen, prodded the markets to predict a rate hike.

The pair USD/CAD reacted by moving upwards to almost 1.32. But lower than expected US labor market report for June and the increase in oil price, which surpassed USD 50 per barrel for the first time since September 2015, led to a reversal. USD/CAD currency pair fell almost 4 percent in early June. Meanwhile, there has been mixed data in Canada recently.

Even if the first quarter GDP growth came in lower than projections, core inflation was quite firm at an annualized rate of 2.2 percent. In this backdrop, the Bank of Canada kept the monetary policy on hold during its recent meeting.

Central bank governor Poloz kept his positive view for the second half of 2016; however, he clearly mentioned that “housing vulnerabilities have moved higher”. If rebound in oil prices continues, CAD is expected to moderately appreciate towards 1.24 by the end of 2016, said Lloyds Bank in a research report.