Increasing oil prices to provide sustained support to CAD, USD/CAD to trade at 1.30 by end-2016

Recently USD/CAD has been trading between 1.28 and 1.33. The changing US officials’ tone has influenced the USD/CAD pair. US Fed Chair Janet Yellen has been dovish as compared to other members who have been more upbeat. Moreover, oil prices have also continued to be a key driver.  Post the release of US DoE and API that indicated surprise decline in inventories, Brent rose back above USD 40/bbl. The economic outlook of Canada continues to be positive. Canada’s retail sales and GDP both came in above consensus forecasts in March.

With the US Fed likely to hike rate in June, USD/CAD is expected to temporarily reverse to 1.35 in the short term, according to Lloyds Bank. However, increasing oil prices is likely to provide a more sustained support to the loonie.

“Our base case is for oil prices to rise towards $55/bbl and for USD/CAD to trade to 1.30 by end-2016”, noted Lloyds Bank.