USD/CAD likely to trade around 1.25 by end-2016 and 1.22 by end-2017

Throughout the last quarter, the USD/CAD currency pair has been confined to a range of 1.2750 – 1.3250. The currency pair, in recent weeks saw bouts of volatility, owing to shifting expectations of U.S. FOMC’s September meeting and movements in oil price. The suggested possibility of a hike of 25 basis points during the Fed’s upcoming meeting moved higher after  the “hawkish” tone adopted by the Fed speakers.

Fed chair Janet Yellen had implied that the case for a hike in rate had strengthened. But the projections were tapered after the subdued non-farm payroll and ISM releases raised questions whether any action would be undertaken by the central bank, said Lloyds Bank in a research note.

Oil had technically entered a bear market in August, dropped more than 20 percent from its June high. It proceeded to rally sharply as speculation rose that Russia and OPEC would agree to constrain production. Oil is expected to track high through the rest of 2016, which should underpin the Canadian dollar. With the global outlook, USD/CAD is expected to move towards recent lows, according to Lloyds Bank.

“We forecast 1.25 by year-end and 1.22 at end-2017”, added Lloyds Bank.