Just to shed some light on fundamentals as to why CAD losing strength: This month’s BoC policy statement, monetary policy report and quarterly press conference establish a firm neutral stance that will reinforce the recently seen relative insensitivity of CAD rates (and thus the currency) to respond to near-term weakness in the data or downside risks.
Into the recent policy meeting, despite the recent cyclical disappointment in the data, an exogenous shock (the Alberta wildfires) that will drive a second quarter contraction and increased global uncertainty from Brexit, BoC expressed an on-going comfort with the outlook and comfort in its neutral bias.
This comfort stems from some optimism in expectations that the Alberta wildfires were a temporary shock that has already passed, a view that Brexit uncertainties are offset by easier global financial conditions.
On the flip side, let’s not forget BoE’s rate cuts which is very much on the cards in the next monetary that could add further depreciation pressure on sterling.
One should understand despite printing better than expected inflation data in the UK, the pound against almost all majors continued to display softness on today while FX markets waited for the International Monetary Fund (IMF) to slash economic forecasts in the wake of the U.K.’s decision to leave the European Union.


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