The Canadian dollar has slightly recovered from its multiyear lows at the start of 2016 due to rebound in the oil price and as the US Fed has still refrained from raising interest rates. However, the Canadian dollar continues to be at historically weak levels. The Bank of Canada requires the currency to be quite weak for some time in order to underpin the competitiveness of domestic firms to stimulate foreign demand, noted Commerzbank in a research note.
As the US Fed is expected to raise interest rates more rapidly than currently anticipated by the market, the US dollar is likely to strengthen against the Canadian dollar in the months to come, added Commerzbank.
Meanwhile, the market might slowly start pricing Canada’s higher inflation and improved economic scenario, permitting the central bank to raise its interest rates. The Bank of Canada is likely to raise its interest rates for the first time in late 2017, according to Commerzbank.
Therefore, the Canadian dollar is expected to considerably appreciate against the USD, especially in 2017. As the ECB is likely to remain expansionary for some time, CAD is likely to strengthen against the EUR in the long-term. The trend of commodity prices is expected to dominate the short-term outlook, said Commerzbank.
