USD/CAD outlook

The Canadian dollar continues to be buffeted by trends in global commodity prices and market risk sentiment. The 'commodity' currency has fallen by over 12% against the USD year-to-date and slid below 75 cents (USD/CAD 1.33) in August for the first time since 2004. A surprisingly 'dovish' US FOMC meeting saw USD/CAD briefly retrace to a five-week low near 1.30 earlier this month, before upward pressure again resumed. It is clear that near-term prospects for the CAD remain closely tied to external market developments. 

The domestic economic situation is showing some tentative signs of improvement, albeit recent data also confirmed GDP contracted for a second successive quarter in Q2. The BoC left the policy interest rate on hold this month after two reductions already this year, citing the weaker CAD as supportive for the economy. CPI inflation rose to 1.3% in August, but the core index slowed to 2.1% from 2.4% in July. The next quarterly Monetary Policy Report on 21 October will be eagerly awaited, coming just two days after the federal election. 

"We forecast USD/CAD at 1.30 at end 2015, easing to 1.20 at end Q2 2016", foresees Lloyds Bank.