USD/CAD likely to fall forwards to 1.20 by end-2019, says Lloyds Bank

The Canadian dollar continues to consolidate in its medium-term range against the U.S. dollar, noted Lloyds Bank in a research report. The Canadian dollar, in recent weeks, has sustained by the sharp rise in oil prices and positive NAFTA-related sound bites. Meanwhile, the US dollar has advanced from the U.S. Fed hiking interest rates during its March meeting and maintaining its relatively ‘hawkish’ policy outlook.

Looking ahead, there seems to be potential for USD/CAD to fall from here. The surge in Canadian inflation in recent months already argues for tighter monetary policy, stated Lloyds Bank. Moreover, the two year US Canadian interest rate differential is close to its recent highs and the risks to Canadian rates seem asymmetrically tilted to the upside. But the Bank of Canada is not yet prepared to act. However, the easing of uncertainty that would come with a NAFTA deal might be the trigger for the BoC to hike rates. This might drive a narrowing in the rate differential and further pressure USD/CAD.

“With the market ‘net short’ of Canadian dollars and ‘fair value’ estimated at 1.20, we think there are good reasons to still be negative on USD/CAD. We forecast the pair to fall towards 1.20 by end-2019”, added Lloyds Bank.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bullish at 137.894, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 83.876. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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